Weekly Market Update

The year is still young with the ink on annual outlook reports barely dry. Yet it still remains notable that volleys of US tariffs and hairline fractures in western alliances have yet to sink global equity markets.

Most notably, some of the regional markets that are deemed most vulnerable to higher US tariffs have been the best performing equity markets in the year-to-date.

The record long 15-year stretch of US equity outperformance and rising relative valuation bear watching. The 2025 Trump administration’s demands from allies have at times seemed shocking compared to the early days of 2017.

But the performance of the US dollar is following a pattern that was apparent then, too. After a surge following the 2016 election, the greenback’s peak was quickly reached. Thereafter, global market returns annualized a respectable 13% (in USD) during the pre-pandemic period of 2017-2019 despite trade wars and Fed tightening.

Today, non-US shares are 40% cheaper vs the US compared to their valuation at the start of that period. But as we heard from Outlook panelists and audiences alike, non-US firms just lack the “exceptionalism” to be worthy of portfolio inclusion, unlike US firms’ shares.

It’s true that pessimism and positioning — rather than innovation and lasting growth — are driving the sharp rebound in some markets such as continental Europe, Brazil and Mexico.

The net share of local investors who expect — and have therefore positioned — for a gain in Eurozone shares is near a record low. Investors fled the Brazilian real and the country’s equities last year, driving the currency and equity market valuation toward record lows. An overshoot in negative sentiment allows for rebounds that are not indicative of long-term sustainable returns.

Markets where the “growth story” seems most plausible — such as India or Japan — have lagged by comparison this year. Yet it is not all a story of mere sentiment.

European currencies and markets have enjoyed a strong start to 2025, despite high uncertainty related to geopolitical risks, especially through their possible drag on economic activity and corporate profits.

Year-to-date, EUR/USD is up 0.8% to around 1.0440 and GBP/USD is up 0.7% to around 1.2600. In local currency terms, the Eurostoxx 600 index has risen by almost 11%, while the FTSE 100 index is up almost 7%.

Our colleagues from Citi Research note that European revisions are bucking historical trends by not only looking more impressive than in the US, but also indicating that upwards revisions have been meaningfully stronger than seasonal patterns would predict.