Trump dump: biggest rotation out of US stocks ever
A survey of professional investors sees the biggest switch out of US stocks in its history, highlighting the popularity of the UK and Europe. It also identifies the world's favourite sector.
18th March 2025 15:27
by Graeme Evans from interactive investor
Professional investors have called time on “US exceptionalism” after overseeing a record flight from Wall Street stocks in favour of those in the UK and Eurozone.
The monthly survey by Bank of America covering the views of institutional, mutual and hedge fund managers showed the lowest allocation to US stocks since June 2023.
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The 40 percentage-point swing from the previous month’s position to a net 23% underweight was the biggest rotation out of US stocks in the survey’s three-decade history.
This reflected the 69% of respondents who said that the theme of US exceptionalism has peaked, compared with 21% who disagreed.
Magnificent Seven stocks, which include NVIDIA Corp (NASDAQ:NVDA) and Apple Inc (NASDAQ:AAPL), are still the most crowded trade, but support is down from July’s peak to the lowest level since November 2023.
The positioning is a far cry from the week after Donald Trump won the race for the White House in a Republican sweep, when fund managers backed US stocks to be 2025’s best asset class.
The S&P 500 index rallied up until mid-February before slumping 10% into last week’s correction territory, driven by an escalation of stagflation and trade war fears.
The weaker sentiment is shown in today’s second biggest drop in global growth expectations, while levels of cash allocation have jumped from an ultra-low of 3.5% to 4.1%.
Expectations for the US economy are now the lowest since May 2023 whereas the outlook for the Chinese economy has continued to improve.
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Despite the increased pessimism, investors are not calling a recession and overall positioning is nowhere near extreme bear territory given that the retrenchment has been from an “uber-bull” level in December to a more neutral position in March.
A soft landing is the view of 64% of respondents, while a forecast of two or three Federal Reserve interest rate cuts is the consensus. A full-blown trade war is seen as the biggest tail risk.
The survey shows that allocation to Eurozone stocks is the highest since July 2021, while investors are net 4% overweight UK equities - a swing of 22 percentage points on the previous month and the highest since June 2021.
Relative to history, investors are overweight utilities, banks, and UK stocks and underweight tech, energy and US stocks.
The survey describes banks as now the “world's favourite sector”, while the allocation to staples is the highest in 18 months. It also reports the biggest rotation to high versus low dividend stocks on record.
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