The U.S. equity market is continuing its bounce, with the S&P 500 advancing for eight consecutive trading days (likely nine if it finishes up on Friday, which looks likely).
Investor sentiment has been buoyed by growing expectations that the Federal Reserve is willing to implement rate cuts to avert a recession, alongside emerging reports of renewed tariff negotiations between the U.S. and China.
Corporate earnings have broadly met or exceeded forecasts: Microsoft and Meta surpassed sales estimates earlier in the week, while Apple and Amazon’s results, though slightly below estimates, were not significant disappointments.
Nonfarm payrolls for April came in above estimates on Friday, highlighting a cooling yet resilient labor market, which calmed fears around the impact President Donald Trump’s tariffs would have on the economy.
In aggregate, these developments have narrowed the S&P 500’s year-to-date decline to approximately 4% in U.S. dollar terms – though currency headwinds have left unhedged sterling investors down near 10%.
International markets have continued to outperform their U.S. counterparts so far this year though, in part due to heightened defense spending commitments in Europe and a weakening dollar. Germany’s DAX is up over 15% in sterling terms this year, and France’s CAC 40 has risen by roughly 6%, as investors seek diversification away from the volatile U.S. market. Overall, global equity flows reflect a shift towards markets perceived as offering robust governance, disciplined fiscal support, and attractive valuation relative to the United States.
As non-U.S. equities have notably outpaced the U.S., this has shrunk America’s share of world market capitalisation. As a result, the U.S. weight in major global benchmarks, which peaked at the start of this year, has since decreased by around 5%.
Alongside the equity shift away from U.S. markets, we’ve seen a parallel currency rotation: the dollar’s usual haven role has been ceded to the Swiss franc. In April alone, the franc jumped nearly 9% against the dollar, its biggest monthly gain since the 2008 financial crisis, underscoring its role as a go-to haven in times of uncertainty and prompting speculation that the Swiss National Bank may intervene to protect export competitiveness.
Just as investors have shifted out of the dollar into the Swiss franc, we’ve also seen a rally in both the euro and German Bunds, signaling a broader move into Eurozone safe havens amid ongoing trade-war angst.
Typically, a stronger euro, driven by economic confidence, dampens demand for Bunds (because of their “safe haven” status), but this month the currency has jumped roughly 5% against the dollar even as two-year U.S. Treasury yields have widened their edge over German yields. This breakdown of the usual inverse relationship between Bunds and the euro reflects growing concerns over U.S. policy, prompting investors to diversify into European debt despite the more attractive American rates.
The combination of slides in Treasuries, the dollar, and U.S. equity markets have rattled investors, prompting a broader reassessment of what constitutes a “safe-haven asset”, and has resulted in the shift we’ve seen in equity and currency flows away from the U.S. and towards Europe.
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