Foreign investors inject $311.1B into U.S. markets in May reversing April outflow as Trump tariff panic eases

Foreign investors injected a record $311.1 billion into U.S. securities in May, reversing a $14.2 billion outflow in April as markets rebounded from panic triggered by President Donald Trump’s aggressive tariff hikes [1]. This surge came despite fears of a bear market and capital flight following the “Liberation Day” tariff surge, which initially drove the S&P 500 and Nasdaq close to bear-market territory. By mid-May, U.S. equities had retaken prior records, and the 10-year Treasury yield, which had spiked over 70 basis points post-Liberation Day, stabilized—though it remained elevated compared to pre-tariff levels. The 12-month net foreign inflows through May neared the $1.4 trillion peak of July 2023, underscoring the resilience of U.S. markets and the enduring appeal of “American exceptionalism,” according to Robin Brooks, a senior fellow at the Brookings Institution. “Markets are far more accepting of all the ups and downs than people realize,” Brooks noted, emphasizing that the U.S. had avoided a “genuine capital flight” despite short-term volatility [1].

While U.S. stocks recovered, global benchmarks like European and Chinese indices outperformed during the same period, reflecting divergent economic trajectories. Tariff negotiations with Japan and other partners have cemented rates above the initial 10% baseline, with unresolved talks potentially pushing rates higher. Market veteran Ed Yardeni of Yardeni Research described the inflow data as a “validation” of U.S. market confidence, dismissing doomsayers who predicted a selloff in bonds, equities, or the dollar. “Our faith in the kindness of strangers has been validated,” he wrote, citing the latest Treasury data [1].

The debate over U.S. exceptionalism has intensified. Citadel founder Ken Griffin warned in April that Trump’s tariffs risked eroding the U.S.’s global “brand,” particularly in financial markets where U.S. Treasuries hold unrivaled prestige. Similarly, Deutsche Bank economist Jim Reid argued that structural underpinnings of U.S. dominance—such as the dollar’s reserve status—are eroding, forecasting continued pressure on the currency. Mohamed El-Erian of Allianz described the era of American exceptionalism as “paused,” citing growing global skepticism.

Critics caution that short-term inflows do not negate long-term challenges. The dollar’s first-half performance marked its worst in over 50 years, and bond yields remain elevated despite the recovery. Brooks acknowledged that while “hurdles for genuine capital flight are high,” structural risks persist. Yardeni’s optimism contrasts with warnings from institutional investors, who argue repeated tariff shocks could erode trust in U.S. markets [1].

The May data reveals a market paradox: foreign investors continue to flock to U.S. assets even as geopolitical and fiscal risks mount. This paradox may reflect the lack of viable alternatives, given the dollar’s entrenched role in global finance. However, as Trump’s trade agenda evolves and negotiations with key partners remain unresolved, the balance between resilience and vulnerability will remain a critical focal point for investors.

Source: [1] [‘US exceptionalism roars back’ as markets defy doomsayers and draw record foreign inflows after panic over Trump tariffs](https://fortune.com/2025/07/27/us-markets-american-exceptionalism-foreign-investors-stocks-treasury-bonds/)