The Week That Was - March 28, 2025

Is the U.S. Still the MVP of Global Markets?

While just whispers for now, investors around the world are starting to wonder if the decade and a half of U.S. dominance of financial market performance is coming to an end.

We are witnessing a confluence of events: slower inflation abroad, a relative value differential, and potentially a weakening dollar.

Let's dive into what happened this week and what that means for you.

The Markets This Week

After (barely) breaking its 4-week losing streak last week, the S&P 500 is on track for another loss as I write this. We are dancing around the agreed-upon definition of a stock market correction, which is a 10% decline from highs.

Certain areas of the market have been hit harder than others. 

The once-beloved semiconductor stocks that were the talk of dinner parties for the last few years have now become like Voldemort when discussing portfolio holdings. Many of these stocks are down over 20-30% from their highs and face a challenging environment with tariffs and a potential proliferation of cheap AI models being built.

U.S. small-cap stocks have entered into bear market territory, which is defined as a 20% decline from highs. Investors have sharply changed their tune on this area of the market post-election. These smaller companies got a post-election boost from investors hoping for a redux of 2017 when small caps performed well under President Trump's first year in office. They have since boomeranged back and then some.

Meanwhile, international markets have been rallying. European and Chinese stocks have surged this year, and for the first time in a while, investors are seriously asking if it's time to look beyond the U.S. Still, some heavyweights like BlackRock say not so fast. While Europe has pockets of strength, they argue the U.S. may soon reassert itself. Time will tell...

The Economy at a Glance

Let me sum this section up in one word: tariffs.

First, we have the Fed and major banks revising their GDP forecasts down because of the potential effects of tariffs on the economy.

The Atlanta Fed is projecting a negative 1.8% GDP print for Q1, thanks largely to a rush of imports ahead of expected tariffs. This is because of the way that GDP is calculated. Since imports are netted against exports, a large imbalance on the import side will cause a drag on GDP.

President Trump's "Liberation Day" is set for April 2, with targeted tariffs potentially causing waves across a variety of industries.

Tariffs cause uncertainty among businesses and consumers. Businesses don't want to commit to any projects because of a murky outlook and consumers are increasingly pessimistic about the economy's future. This can cause them to tighten their purse strings, and a recession almost becomes a self-fulfilling prophecy. In a worrying sign, March's University of Michigan consumer confidence survey came in at the lowest level since 2022.

Inflation is sticking around like the pesky few pounds that many of us put on during the holidays. The Fed's preferred inflation metric (core PCE) ticked up to 2.8% in February, and consumers now expect prices to rise by 5% over the next year. While personal incomes and spending were up in February, the pace has cooled from last year's post-pandemic surge.

Globally, though, inflation is softening. Countries like France and Spain saw low inflation readings this month, setting the stage for possible rate cuts in the eurozone. That's good news for global investors, even if the U.S. is still stuck in a higher-for-longer inflation cycle.

What This Means For Your Portfolio

So, are we witnessing the end of American exceptionalism?

Maybe, maybe not.

But the narrative is beginning to shift. The U.S. still commands a premium valuation and accounts for over 60% of the global stock market weight despite making up less than 30% of the global GDP. That gap might be due to adjust.

Before we get ahead of ourselves, we've seen this story before.

Like Lucy pulling the football from poor Charlie right before he kicks it, there have been many times over the past 15 years when international markets were poised to take the baton, only to have the U.S. reassert its dominance.

Keep your long-term plan in focus, and don't let the headlines throw you off course.

As always, if you have questions about how these developments affect your portfolio, let's talk.