US Markets Face Pressure as European and Chinese Stocks Outperform
Investor concerns over continued gains in the S&P 500 are rising as global markets, including European and Chinese stocks, show stronger momentum, according to Bank of America Corp. (BAC) strategist Michael Hartnett.
The S&P 500 (^GSPC) has struggled to reach new record highs, fueling doubt among market participants about the sustainability of the US stock rally. Meanwhile, global equities outside the US have posted stronger gains, raising questions about the relative attractiveness of American markets in 2025.
“The longer it takes and the harder it is for the S&P 500 to get to new highs, the doubts grow,” Hartnett said in an interview with Bloomberg TV.
US Stocks Underperform as Investors Reassess Valuations
So far in 2025, US equities have lagged behind global peers:
- The S&P 500 is up less than 2% year-to-date, compared to a 7% rally in the MSCI All-Country World Index (excluding the US).
- The “Magnificent Seven” technology stocks—which include Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—have fallen 3.3% this year.
- Investors are reassessing AI-related spending and overall US stock valuations, which surged in 2023 and 2024.
Hartnett recommends international equities over US stocks, arguing that the momentum behind big US tech firms may be fading after dominating the market for two years.
Will Trump’s Administration Intervene if Markets Decline?
With President Donald Trump back in office, Hartnett suggests that market participants may look for fiscal intervention if the S&P 500 were to drop to the 5,600–5,700 range—a decline of about 6% from current levels.
“The stock market is his traffic light,” Hartnett said, suggesting that Trump could introduce new policies or stimulus measures if stocks begin to fall sharply.
Factors Driving Global Stock Outperformance
While US markets struggle to maintain momentum, other major stock markets are thriving:
1. European Markets Gain Strength
- European stocks have benefited from increased fiscal stimulus, resilient corporate earnings, and stronger-than-expected economic growth.
- The Euro Stoxx 50 Index has outperformed US benchmarks, with sectors such as industrials and financials leading the way.
2. China’s Market Rebound
- Chinese equities have shown renewed strength, as Beijing ramps up efforts to stimulate the economy and attract foreign investment.
- Government-backed economic initiatives and improving trade conditions have boosted investor confidence in Chinese stocks.
3. US Bond Market Stability
- While stocks face headwinds, US bonds have stabilized, attracting investor capital as yields remain attractive.
- The 10-year Treasury yield has declined to 4.33%, signaling a flight to safety amid market uncertainty.
Investor Sentiment and Market Outlook
Investor sentiment remains cautious, especially regarding the sustainability of the US market rally.
- Concerns about economic growth, rising interest rates, and high valuations could continue to pressure stocks.
- If the Magnificent Seven fail to deliver strong earnings, market volatility may increase.
- Global diversification is becoming more attractive to fund managers looking for better risk-adjusted returns.
While the S&P 500 remains near all-time highs, its struggles to maintain momentum raise concerns about future gains—especially as global stocks outperform.
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