Reassessing Global Investor Sentiment Toward U.S. Assets Amid Deleveraging Concerns

The global investment landscape in early 2025 is marked by a pronounced shift in sentiment toward U.S. equities and bonds. Investors, spooked by trade policy volatility, fiscal deficits, and geopolitical realignments, have pared their allocations to U.S. assets to multiyear lows. Yet beneath the surface of this deleveraging frenzy lies a compelling opportunity: underweight positions in U.S. equities and bonds now present a strategic entry point for investors seeking to capitalize on undervalued assets and structural advantages. Let's dissect the data and trends to uncover why now is the time to reassess—and act.

The Capital Flow Conundrum: Why the Underweight Exists

Global capital flows have turned decisively against U.S. assets since early 2025. Foreign investors, once the stalwarts of U.S. equity markets, are repatriating capital to home markets, particularly in Europe and Asia. . The decline in U.S. equity overweight positions has reached its lowest level in three years, with European equities now outperforming the S&P 500 by their largest margin in two decades. This shift is driven by three factors:
1. A Weakening Dollar: The U.S. dollar's 7% decline year-to-date has amplified returns for international investors, tilting the scales toward non-dollar assets.
2. Sector-Specific Concerns: Sectors like technology and consumer discretionary—reliant on global supply chains—have faced headwinds from tariffs and inflation.
3. Defensive Rotations: Investors have shifted toward low-volatility strategies, favoring European banks over U.S. equities.

Yet this exodus has created a disconnect between sentiment and fundamentals. . Current valuations for the S&P 500 sit near historical averages, with sectors like utilities and healthcare trading at discounts to their premiums earlier in the year. The underweight in U.S. equities is overdone.

Bonds: The Case for Rebalancing Long-Term Exposure

The bond market tells a similar story of overreaction. Long-term U.S. Treasuries have seen investor demand plummet to the bottom quartile of five-year observations, driven by fears of fiscal deficits and rising term premia. Yet this pessimism overlooks two critical realities:
1. Short-Term Safety: Short-duration bonds (3–7 years) offer attractive carry yields with reduced rate sensitivity. Their yields remain elevated relative to European peers, making them a “cash-plus” alternative.
2. Inflation Anchoring: While tariff-driven inflation has pressured breakeven rates, the Federal Reserve's credibility in fighting inflation has kept long-term expectations anchored. A reveals a narrowing gap, suggesting yields are pricing in a moderation of price pressures.

Investors' underweight in long-term Treasuries now presents a tactical opportunity. With geopolitical risks still favoring safe-haven assets and the yield curve resistant to steepening, the time to rotate back into these instruments is now.

Geopolitical Realities: Why the U.S. Remains a Strategic Anchor

The geopolitical landscape, while turbulent, reinforces the U.S.'s role as a resilient investment destination. Key trends include:
- AI-Driven Growth: Despite near-term supply chain hiccups, U.S. tech giants—Microsoft, Amazon, and NVIDIA—are pouring $315 billion into AI infrastructure in 2025. This structural tailwind is already reflected in software sector performance, which has outperformed hardware by 12% year-to-date.
- Geopolitical Diversification: While Latin America and Europe benefit from trade shifts, the U.S. retains unparalleled liquidity and rule-of-law advantages. Central banks' diversification away from the dollar has been gradual, with gold and Treasuries still dominating reserve allocations.
- Resilient Labor Market: Despite GDP drags from tariffs, U.S. labor market tightness persists, underpinning consumer spending and corporate earnings.

These factors suggest that while geopolitical risks are real, they are not existential for U.S. assets.

The Contrarian Play: Rebuilding Exposure Now

The data and trends are clear: the underweight in U.S. equities and bonds is excessive. Here's how to act:
1. Rebalance Equities: Overweight sectors like utilities (historically low volatility, 13x forward P/E) and healthcare providers (undervalued relative to staples). Avoid crowded trades in consumer discretionary.
2. Rotate into Long-Term Treasuries: Use dips to build positions in 10–20 year maturities, hedging with inflation-linked bonds (TIPS) for diversification.
3. Diversify with Alternatives: Pair U.S. exposures with gold () and infrastructure to mitigate volatility.

Conclusion: The Tide is Turning

The deleveraging of U.S. assets has reached a peak of pessimism. Yet the fundamentals—resilient earnings, structural tech growth, and relative safety—suggest this is a buying opportunity masked by short-term noise. Investors who act now can capitalize on valuations that reflect worst-case scenarios, while positioning for a rebound in global confidence. The time to reassess—and act—is now.

. The data is clear: the underweight is overdone. Take action before the tide turns.

For further analysis, monitor the S&P 500's forward P/E ratio and 10-year Treasury yields over the next quarter to gauge sentiment shifts.