Non-US stocks surge, to what extent has "American exceptionalism" reversed?
Recently, non-U.S. stocks have performed strongly, and the relative advantage of the U.S. stock market has weakened. A report from JPMorgan Chase indicates that from May 2023 to the end of 2024, U.S. assets outperformed globally, but since early 2025, non-U.S. stock markets have outperformed the U.S. stock market, particularly in Europe and China. Changes in capital flows show an increased interest from investors in European stock markets, while inflows into the U.S. stock market have declined. Economic data also supports this reversal, with European macroeconomic data performing better than that of the U.S
Recently, non-U.S. stocks have performed strongly, while the relative advantage of the U.S. stock market is weakening. To what extent has "American exceptionalism" reversed?
The latest report released on the 19th by JPMorgan's Nikolaos Panigirtzoglou team points out that from May 2023 to the end of 2024, U.S. assets are expected to outperform other regions globally, characterized by a stronger dollar, better performance of the U.S. stock market compared to non-U.S. markets, technology stocks outperforming non-technology stocks, and U.S. Treasury bonds underperforming global bonds.
However, since early 2025, this trend has reversed, with non-U.S. stock markets outperforming the U.S. stock market, particularly in Europe and China. JPMorgan notes that the reversal for most assets is about 10% to 20% compared to the trend from May 2023 to the end of 2024. The reversal for Chinese stocks is even greater.
Although some indicators suggest that the reversal of the American exceptionalism theme may have gone far, from a price and positioning perspective, this reversal is still ongoing and relatively limited in extent. JPMorgan believes that the reversal regarding the dollar and U.S. stock fund flows relative to other regions globally remains relatively mild. This means that while the market landscape is changing, the importance of the U.S. in the global economy and financial markets cannot be overlooked.
Non-U.S. Stock Markets Favored, European Economy Unexpectedly Outperforms the U.S.
The change in capital flows is an important manifestation of this reversal. JPMorgan's data shows that the inflow percentile for European stocks is nearing the highs of 2023, indicating a significant increase in investor interest in European stocks. In contrast, the inflow percentile for U.S. stocks has declined.
Since the beginning of the year, the reversal in dollar and U.S. stock fund flows relative to other regions globally has been relatively mild, while the positioning change for U.S. technology stocks compared to non-technology stocks has remained largely unchanged.
Notably, the research report points out that the momentum signals for the Hang Seng China Enterprises Index and the EURO STOXX 50 Index show signs of being overbought, but this overbought condition may persist for several months.
Changes in economic data also provide fundamental support for this reversal. JPMorgan's Economic Activity Surprise Index (EASI) shows that in early 2025, macroeconomic data in Europe unexpectedly outperformed that of the U.S. This data divergence indicates that the recovery of the European economy may be stronger than market expectations, while the growth of the U.S. economy faces certain uncertainties.
Additionally, optimism about a potential ceasefire in the Russia-Ukraine conflict has also boosted the performance of European stocks, further enhancing investor confidence in the European market
The Dilemma of the U.S. Treasury Market: Can SLR Exclusion Bring a Turning Point?
The U.S. Treasury market is also facing a similar dilemma. In recent years, the Supplementary Leverage Ratio (SLR) has imposed restrictions on the liquidity of the Treasury market.
JP Morgan pointed out that if the SLR exclusion measures can be implemented, it may alleviate some of the "inconveniences" in the Treasury market to a certain extent, but this impact may be relatively limited. This is because, in addition to the SLR constraints, factors such as the limitations on dealers' balance sheets and the demand for duration from pension funds continue to affect the performance of the Treasury market.
Finally, the cryptocurrency market has also not been spared from changes in market sentiment. Since peaking at $3.72 trillion in December 2024, the cryptocurrency market capitalization has declined by 15%, currently standing at $3.17 trillion. Bitcoin and Ethereum futures are nearing a discount state, indicating signs of weakened demand. This trend may be related to a decline in market preference for risk assets and reflects investors' concerns about global economic uncertainty.
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