Chris Flood
5 min read
In This Article:
President Donald Trump has reportedly been infuriated by the spate of TACO, or "Trump always chickens out," jibes inspired by the President’s retreat from his initially draconian negotiating position on trade tariffs.
Slow progress towards signing trade deals has weighed heavily on the U.S. dollar, down almost 9% this year on the DXY index, which measures the greenback’s strength against six other major currencies, the loudest market warning signal about Trump’s trade and fiscal policies.
Global fund managers as a group have moved to their most pessimistic position on the U.S. dollar in nearly two decades, according to Bank of America’s closely watched monthly survey.
A net 38% of these asset allocators also held an “underweight” position in U.S. stocks in May, a two-year low in the BofA survey which polled 174 respondents that together oversee combined assets worth $458 billion.
Even so, the S&P 500 has more than recovered the losses incurred in the highly volatile weeks that followed Trump’s “Liberation Day” on April 2, a remarkable rebound given the apparent souring in sentiment among large institutional investors towards U.S. assets and mounting evidence of their renewed interest in European equities.
Goldman Sachs this week noted that allocations to European equities by domestic European investors “rose meaningfully in the first quarter and this trend appears to be gathering momentum.”
Debate is now boiling over whether this is just the start of a structural shift away from the U.S. in reaction to Trump’s tariffs, his territorial expansion ambitions and his demands for more military spending by European governments, which have spurred greater investor interest in defense ETFs.
Trump’s policy announcements have resulted in a “fundamental shift” among international investors that will drive a “strong and prolonged rotation of capital from the U.S. to European equity markets,” according to UBS.
Michael Werner, an analyst at UBS in London, reckons capital inflows worth €1.2 trillion could move into European equities over the next five years as investors reduce their allocations to the U.S. stock market.
Passive index tracking strategies appear to be taking the majority of the early reallocations towards larger European stocks, which prompts the question as to how much of the projected €1.2 trillion might be captured by equity ETFs listed in Europe.
Data from the LSEG Lipper research team shows that ETFs gathered 41.3% of the €620.2 billion of inflows registered in 2024 by Europe’s fund industry, including short-term money market funds.
