S&P 500 falls behind for the first time in years: Donald Trump’s policies backfire as foreign stocks surge while S&P 500 slumps 6%; Europe and China now outpace U.S.

The US stock market has lagged behind its international peers for the first time in years, as US president Donald Trump's policies appear to have had the opposite effect, as per a report.

The S&P 500 down 6% since his inauguration as investors are withdrawing funds from the US and investing them in stocks abroad, reported New York Times.

Global Markets Surge

Since January, Germany's Dax index has increased by 10%, while the wider European Stoxx 600 index has risen over 4%, New York Times reported. China's Hang Seng Index, driven by China's government-driven economic stimulus, has risen over 20%, according to the report. Even Mexico's IPC index, which is not affected by Trump's tariff actions, is up 5%, as per New York Times.

Investment Shifts

Investors are increasingly seeking to look elsewhere beyond the US for higher returns, partly driven by Trump's erratic tariff strategies and his administration's sharp reductions in the federal government, the New York Times reported.

Morgan Stanley Investment Management's deputy chief investment officer, Jitania Kandhari, said, “It is definitely time to be looking at ex-U.S.,” New York Times quoted. She mentioned that clients are have shown interest in gaining more exposure to international stocks, the report added.

The instability in US markets is mainly because of the uncertainty about Trump's economic policies. A recent JP Morgan report reiterated such concerns, cautioning investors to "fade US exceptionalism" and turn to more stable, overseas markets, reported New York Times.

MFS Investment Management's market strategist Brad Rutan, claimed that there are opportunities outside the United States, as per the report. Rutan said, “It’s safe to say that there is plenty of room now for international equities,” as quoted by New York Times.

Even Slumping Markets Outperform the S&P 500

Though even a few global markets have dropped but still they have outperformed the S&P 500, New York Times reported. The FTSE All-World index has fallen 2.9% since Trump took office, with much of the decline being due to US-listed stocks. While Canada’s TSX index has slipped 2% and the Japanese Nikkei 225 has dropped 3.6%, as per the report.

Change in Investor Sentiment

In the last week, the direction of investor sentiment has changed, money has been withdrawn from US stock funds for the first time this year, based on EPFR Global data, the New York Times reported. The outflow, totalled at $2.5 billion, comes after nearly $100 billion flowed into US stocks this year through the first nine weeks of 2025, according to the report.

If this pattern holds, it could further accelerate the selling pressure that recently sent the S&P 500 into what's termed a correction — a decline of over 10% from its high, reported New York Times.

However, according to Kandhari, "the US markets are so large that a complete exodus by foreign investors is near impossible, but the shift can definitely create market moves,” as quoted in the report.

FAQs

Why are investors pulling money from US stocks?
Many investors are concerned about the uncertainty created by Trump’s policies, including tariffs and cuts to the federal government.

How are foreign markets benefiting from the US market fall?
When the US stocks dropped, the international markets, particularly in Europe and Asia have gained increased investment.