International stocks posted their strongest first-quarter outperformance against U.S. stocks on record, according to Dow Jones data. In late 2024, the “American exceptionalism” trade was thriving, with investors pouring money into U.S. stocks following Donald Trump’s election victory in November. However, the first quarter of 2025 has painted a different picture. U.S. stocks have struggled due to the unwinding of artificial intelligence-driven trades and uncertainty surrounding tariffs, while international markets have surged ahead. As of Monday, the S&P 500 (SPX) was on track to trail global stocks—measured by the MSCI All Country World Index ex-U.S. ETF (ACWX)—by nearly 11 percentage points in the first quarter. This would mark the largest first-quarter outperformance by international stocks on record, based on Dow Jones Market Data dating back to 1987. Despite this shift, U.S. stocks have significantly outperformed their international counterparts over the past two decades. Since March 2005, the S&P 500 has risen 370%, compared to less than 65% for the MSCI All Country World Index ex-U.S. ETF, excluding dividends. This suggests that a “catch-up” trade is now underway. “We’re finally seeing some reversion to the mean,” said Ryan Dykmans, chief investment officer at Dunham & Assoc. Investment Counsel, in an interview with MarketWatch. Historical data indicates that when international stocks outperform U.S. equities significantly in the first quarter, they tend to maintain that lead for the rest of the year. Global Market Performance Stock performance has varied globally in the first quarter. The STOXX Europe 600 (SXXP), covering eurozone, U.K., and Swiss stocks, is on track for its best first-quarter outperformance against the U.S. since 2015, according to Dow Jones data. In contrast, Japan’s Nikkei 225 (NIK) has struggled, falling over 10% in local-currency terms, according to FactSet data. Currency Weakness and Foreign Investment Risks For foreign investors in U.S. stocks, 2025 has been particularly challenging. The U.S. dollar has declined alongside equities. As of midday Monday, the ICE U.S. Dollar Index (DXY) had dropped about 4% for the quarter, while the S&P 500 had fallen over 5.5%, per FactSet data. This marks the first time both have fallen simultaneously in a calendar quarter since early 2018. A weaker dollar amplifies losses for foreign investors. Many had avoided hedging their currency exposure due to the dollar’s historical strength. If U.S. stocks continue to lag, international investors may shift funds to Europe or other markets, potentially exacerbating U.S. stock losses in a negative feedback loop. “There was a time when U.S. stocks were primarily owned by domestic investors,” said Hardika Singh, an economic strategist at Fundstrat Global Advisors. However, since the early 2000s, foreign investment in U.S. stocks has grown significantly. According to Federal Reserve data cited by Goldman Sachs, foreign investors held 18% of U.S. equities in late 2024, up from 7% in 2000 and just 2% in 1960. By late 2024, U.S. stocks accounted for 57% of global equity market value, surpassing the peak of the dot-com bubble in 2000. However, their share has since declined to 54%. Singh attributes the recent outperformance of international stocks to a “catch-up” trade rather than a long-term shift. While Trump’s tariff policies introduce uncertainty, their economic impact is expected to be global as trading partners retaliate. Moreover, U.S. companies are still projected to experience stronger earnings growth than their global peers in 2025, reinforcing Fundstrat’s expectation that U.S. stocks will regain leadership before year-end. “It really is to the rest of the world’s advantage that the U.S. continues to do well,” Singh added. On Monday, the S&P 500 rose 0.6%, trimming earlier losses. The Dow Jones Industrial Average (DJIA) gained 417 points, or 1%, reaching 42,001, while the Nasdaq Composite (COMP) fell 0.1% as Big Tech stocks continued to struggle.

Investors Brace for Market Volatility as Trump Plans Sweeping Tariffs U.S. stock futures dipped on Sunday as investors grew anxious over President Donald Trump’s forthcoming reciprocal tariffs, which he signaled would target nearly all countries. The tariffs, aimed at addressing perceived trade imbalances, are expected to be announced this week. “I couldn’t care less if the prices on foreign cars go up; they’re going to buy American cars,” Trump stated in a Saturday interview with NBC News. “We have plenty.” The planned 25% tariffs on foreign-made cars and auto parts are set to take effect on Thursday. Additional tariffs, potentially as high as 20%, could be imposed on a broader range of imports, according to the Wall Street Journal. Market Reactions and Growing Uncertainty At 11 p.m. Eastern on Sunday, Dow Jones Industrial Average futures (YM00) fell around 180 points or 0.4%, while S&P 500 futures (ES00) slipped 0.7% and Nasdaq-100 futures (NQ00) declined 1.2%. Bitcoin (BTCUSD) also lost ground, falling below $82,000. On Friday, the Dow tumbled 1.7%, the S&P 500 dropped 2%, and the Nasdaq Composite sank 2.7%, extending March’s losses. Concerns over tariffs, inflation, and weak economic data have fueled worries of stagflation—a period of low growth and high inflation. Overseas markets mirrored these concerns, with Japan’s Nikkei 225 falling 4%, and stocks in Hong Kong (HSI -1.3%), South Korea (KOSPI -3%), and Australia (ASX 200 -1.74%) also declining. Trump Dismisses Price Hike Concerns Trump denied reports that he advised U.S. automakers against raising prices in response to tariffs. “No, I never said that,” he told NBC News. “I couldn’t care less if they raise prices, because people are going to start buying American-made cars.” A White House aide later clarified that Trump’s comments referred to foreign-made cars. Despite this, economists warn that the tariffs will likely drive up prices, even for domestic vehicles, due to the higher cost of imported parts. Industry Experts Expect Significant Price Increases Morgan Stanley analysts forecast that car prices could rise by 11% to 12% on average as automakers pass on tariff costs to consumers. Bloomberg Intelligence’s Steve Man warned of further strain on already thin profit margins for automakers. “Even if Trump pressures companies to maintain prices, the financial impact will be severe,” Man said. “There’s no avoiding the ripple effects on the industry.” Stephen Innes, managing partner at SPI Asset Management, described the tariffs as a significant threat to global supply chains. “A 25% blanket tariff on imported vehicles isn’t just a trade policy shift; it’s a seismic shock for inflation and supply chains,” he said. A Permanent Trade Policy Shift? Trump suggested that the tariffs will be a long-term measure, unlike previous levies on Mexico and Canada that faced delays. He maintained that the scheduled April 2 deadline is firm unless trading partners offer substantial concessions. “I’m open to negotiations,” Trump said, “but only if they’re willing to give us something of great value.” As investors await further details on the tariffs, market volatility is expected to persist, with implications likely to ripple across industries and global trade.

Retail investors are bracing for a decisive moment as President Donald Trump’s April 2 tariff announcement looms. After months of tariff-induced market volatility, many have seized the opportunity to buy the dip. With the announcement now imminent, their strategy is about to face a critical test. “They’re standing on the edge of either a major win or a costly mistake,” investor-research firm Vanda Research noted in a recent report. Vanda Research data shows that despite the S&P 500 pulling back from its February 19 peak, retail investors have poured over $32.9 billion into U.S. stocks. This influx places retail buying activity in the 97th percentile for any 24-trading-day period since 2014. Beyond equities, there has been a notable surge in options trading. Marco Iachini, senior vice president of research at Vanda, highlighted a shift toward bullish call options, signaling that investors may be positioning for a market rebound. “The spike in options activity on Monday prompts a key question: Are investors hedging against uncertainty ahead of April 2, or are they reinforcing their belief in a market recovery?” Vanda’s report stated. While options buying typically aligns with increased equity purchases, the divergence seen this week suggests a more tactical approach. Options contracts require less capital upfront than stock purchases, enabling investors to maintain exposure while managing risk. This strategy mirrors patterns seen in August 2024, when a sharp market selloff led to a similar rise in options activity. Investors may once again be hedging their bets, preparing for both volatility and potential upside in the wake of the tariff decision.

Automakers are facing tough choices in response to new tariffs: absorb the cost of importing auto vehicles, pass the extra expenses onto consumers, or invest in building U.S. factories. On Wednesday evening, the Trump administration announced a 25% tariff on all cars not manufactured in the U.S. and specific automotive parts. Some components were excluded from these levies. The tariffs will take effect on April 3, one day after the administration plans to unveil a broader reciprocal tariff strategy. According to a White House statement, the tariffs will target passenger vehicles and select parts like engines, transmissions, powertrain components, and electrical systems. The administration also indicated the possibility of expanding tariffs to additional parts if necessary. Parts that meet the U.S.-Mexico-Canada trade agreement (USMCA) requirements will remain exempt until further guidelines are established for taxing non-U.S. content. These tariffs pose significant challenges for automakers, who must decide whether to absorb the added costs, increase prices, or shift production to the U.S. Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, highlighted the difficulty of relocating factories. He noted that most cars imported from Mexico are lower-cost models, while high-margin SUVs and trucks are predominantly produced in the U.S. due to a long-standing 25% tariff on imported SUVs and trucks. “Moving production requires substantial investment and time. It’s not a decision that companies can make quickly,” Fiorani said. Frank DuBois, a professor at American University’s Kogod School of Business, agreed. He emphasized that carmakers cannot swiftly establish new U.S. factories or supply chains, especially with uncertainty surrounding the longevity of the tariffs. Despite these concerns, Trump expressed enthusiasm about the tariffs. “You’re going to see a lot of construction jobs and automobile jobs. It’s exciting,” Trump told reporters. He added that companies with existing U.S. factories would benefit, while those without domestic operations would need to act quickly to avoid the tax. Support for the tariffs emerged from the Alliance for American Manufacturing. The group’s president, Scott Paul, stated that while tariffs aren’t the only method to encourage U.S. auto production, they are necessary. However, stock markets reacted negatively. Shares of major automakers dropped on Wednesday. General Motors Co. (GM) fell 3%, Stellantis (STLA) dropped nearly 4%, and Ford Motor Co. (F) managed a slight 0.1% gain after minimizing losses. European manufacturers such as BMW (BMW), Mercedes-Benz Group (MBG), and Volkswagen (VOW) also experienced losses ranging from 2% to 4%. The broader U.S. stock market followed suit. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all declined, breaking a three-day winning streak. Futures for these indices initially fell following the announcement but showed signs of recovery overnight.

With cash reserves rapidly depleting, the Treasury Department is expected to exhaust its resources soon, though the exact timing remains uncertain. The so-called “x date” — when the Treasury’s emergency cash management measures will be fully spent — could arrive as early as May. This deadline holds significant implications for President Donald Trump’s tax plans and financial markets. Congressional Republicans Urged to Raise Debt Ceiling The Trump administration has reached its legal limit on issuing additional debt to fulfill the U.S. government’s financial obligations, including Social Security payments and military operations. Tax Plan and Debt Ceiling Interplay If Republicans fail to pass their tax bill before the debt ceiling is raised, they will likely require Democratic support. Brian Gardner, a policy analyst at Stifel, noted that separating the two issues could lead to more complex negotiations. The Trump administration is advocating for an extension of the 2017 individual tax cuts, which analyses suggest have primarily benefited wealthy Americans. Additionally, proposals to eliminate taxes on tips, overtime, and Social Security benefits could increase the overall cost to over $11 trillion over a decade, according to the Committee for a Responsible Federal Budget. Republicans are relying on budget reconciliation, a process that enables a tax bill to pass the Senate with a simple majority. While they could potentially include a debt ceiling increase in the same legislation, some Republicans are reluctant to approve additional debt without bipartisan backing. Deadline Uncertainty and Political Strategy Estimates from the Bipartisan Policy Center suggest the Treasury could default on its obligations between mid-July and early October. However, the exact timing remains unpredictable due to fluctuating tax receipts. House Ways and Means Committee Chair Jason Smith has warned that the deadline could arrive as early as mid-May. Henrietta Treyz, director of economic policy at Veda Partners, suggested that an earlier deadline would benefit House Republicans who want to pass the tax plan swiftly. With a narrow three-seat majority and all House members facing re-election in 2026, Speaker Mike Johnson is under pressure to secure a legislative victory. While House Republicans are pursuing aggressive tax cuts potentially offset by Medicaid reductions, Senate Republicans are showing less urgency. Treyz noted that the Senate GOP is more inclined to adopt a gradual approach to tax reform, avoiding a politically fraught debt ceiling debate. Market Risks and Political Brinkmanship If the debt ceiling increase is not included in the reconciliation process, Republicans will need Democratic votes. Senate Minority Leader Chuck Schumer is expected to face pressure to demand concessions. Gardner warned that such political brinkmanship could elevate market volatility. Previous debt ceiling standoffs have shown that while equity markets often remain stable, bond markets experience disruptions. Investors tend to flock to short-term Treasury bills, and the cost of insuring against U.S. debt typically rises. With both parties entrenched in their positions, the potential for financial uncertainty remains high. House Democratic Caucus Chair Pete Aguilar has already stated that Democrats will not agree to raise the debt ceiling without negotiations, signaling a challenging path ahead.