Investors are getting out of U.S. stocks
Investors are ditching U.S. equities in favor of overseas assets as economic concerns grow
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Investors are ditching U.S. equities in favor of overseas assets as concerns grow over fiscal policy, rising debt, and a possible recession.
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Exchanged-traded funds (ETFs) and equity mutual funds based in the U.S. saw outflows of $24.7 billion in May, according to LSEG data cited by Reuters. That’s the largest monthly exodus in a year. Meanwhile, last month European funds recorded inflows of $21 billion, taking year-to-date inflows to $82.5 billion, the highest in four years.
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Data for 292 emerging market equity ETFs revealed inflows of $3.6 billion last month, bringing this year’s total to $11.1 billion, according to Reuters.
The S&P 500 is up just 3% this year. By comparison, it had risen 14% by this time last year.
President Donald Trump’s reciprocal tariffs on imported goods, and his fiscal policy, have a lot to do with the flight, as it has eroded U.S. assets’ safe-haven reputation.
Since the unveiling of the levies on April 2, the U.S. dollar has shed about 5% of its value against a basket of foreign currencies. Concurrently, in the week or so following "Liberation Day," a U.S. government bond sell-off ensued, sending 10-year Treasury yields soaring more than 12%. Yields remain high, hovering around 4.45%, up from 4.16% the day before the tariff unveiling.
Adding to the bond market’s tariff-related jitters, last week Trump unveiled his “Big Beautiful Bill," which could add $2.4 trillion to the deficit over the next decade, according to the nonpartisan Congressional Budget Office.
Typically, the dollar and yields have moved in step with each other, as higher yields signal to investors that economic growth is to come, thus attracting inflows of foreign capital and strengthening the currency.
That relationship appears to be breaking down, as the correlation reached its lowest level in nearly three years in June, according to the Financial Times' analysis of LSEG data. It's thought that higher borrowing costs could reflect higher risk, as the government takes on more debt while tariffs threaten growth.