Foreign Investors Defy Tariff Turmoil, Stick with US Stocks Despite Market Uncertainty
Investors Sticking with US Stocks Despite Tariff Turmoil
In a surprising turn of events, recent data indicates that investors abroad have continued to allocate significant portions of their assets to US equities despite the ongoing trade tensions and tariff troubles. The findings suggest that globally, investors aren’t shifting away from equities as part of their overall investment strategies, contrary to expectations.
According to research from Ned Davis Research, foreign investors allocated over 30% of their US financial assets to equities by the end of June this year. This figure is near record highs and significantly exceeds the long-term average of about 19%. The continued preference for US stocks among international investors contradicts predictions that the tariffs would lead a mass exodus from global equities.
One of the primary reasons behind the sustained investor confidence in US equities is the gradual reduction in the initial tariff impact. As companies have managed to better absorb and comply with higher levies, the market’s rebound from April lows has erased much of the panic induced by the tariffs’ announcement. The effective tariff rate is now lower than initially anticipated, roughly hovering around 9% due to measures like carve-outs, transshipments, stockpiling, and thinner margins.
The stabilization of interest rates and renewed optimism about US growth have played a crucial role in bolstering investor confidence. However, the latest wave of tariffs imposed by President Trump introduces an element of uncertainty into the outlook, prompting questions over whether the trade war’s influence on investor decisions will remain minimal.
A Delicate Balance
Experts are attributing the resilience of US equities to a range of factors beyond mere market fluctuations. Keith Lerner, chief investment officer at Truist, points out that expectations for both the US and international markets were heightened before 2025 began. "From my standpoint," he stated, "the expectations for the US were extremely high coming into this year, and expectations for the international markets were extremely low." He explains how good news in other markets has translated into a significant boon for those regions, while a little bad news can have a disproportionately large impact on the US market due to its already lofty expectations.
A critical development that also played a role is President Trump’s rhetorical escalation against Federal Reserve Chair Jerome Powell. These tensions not only questioned the Fed’s independence but also heightened investor worries about the resilience of the US economy, prompting stock selling in April following the unveiling of higher tariffs under "Liberation Day."
International Equities: A Story of Resilience
Unlike traditional havens such as Treasurys or the dollar during times of stress, international equities experienced a surge. At one point, they outperformed US stocks by as much as 17%, with Winthrop Capital noting this gap narrowed to about 10%. Adam Coons, chief investment officer at Winthrop, observed that "What you saw in the spring was a move that just went too far." He noted how international stocks are still performing well but the differential between them and US stocks has largely closed.
A Factor of Tech and Policy
Price-to-earnings ratios have made stock investments more attractive in the US. According to Lerner, when focusing on developed international markets, one notices they don’t have robust tech sectors, which "is why investors have cooled a little bit there." Furthermore, policy has influenced market dynamics significantly. Earlier this year, Europe’s fiscal stimulus played a role for the international markets. However, now the US has taken the upper hand with interest rate cuts, diminishing recession worries, and clearer expectations on government support in Washington.
Dollar Stability and Impact
The greenback stabilized despite its earlier sharp decline. Although weaker than at the beginning of the year, its stability has curbed one of the significant strengths supporting international equities: currency gains. These had been a major factor in their initial rally this year. For now, Lerner indicates that Truist is positioned as "Team USA," but with added international exposure for hedging purposes.
Conclusion
In conclusion, while the escalation of tariffs by President Trump presents risks to continued investor confidence in US equities, current trends suggest this sector remains a preferred destination globally even amidst tariff turmoil. The resilience seen contrasts against forecasts that investors would shift away from equities based on heightened trade tensions and anticipated tariff impacts.
