Wall Street Is Cooling Off on U.S. Exceptionalism

The once-ubiquitous narrative of "American exceptionalism" is beginning to lose its luster among Wall Street investors. A combination of geopolitical risks, trade policies, and market dynamics has led to a decrease in investor confidence in the U.S. stock market. This shift in sentiment is evident in various surveys and data points, which suggest that the U.S. is no longer the undisputed epicenter of AI and technological innovations supported by robust growth.

One of the most striking developments is the relative underperformance of U.S. equities compared to other major global markets, such as Europe. While the S&P 500 has only gained around 3% year-to-date, the Europe Stoxx 50 index has surged by 13%, outpacing the tech-heavy Nasdaq, which has risen by a mere 3.8%. This trend has led investors to increasingly favor European stocks, with 34% of fund managers expecting international stocks, particularly European stocks, to be the best-performing asset class in 2025.

The waning confidence in "American exceptionalism" is also reflected in the views of fund managers. According to a survey by Bank of America, 36% of fund managers believe that the narrative is losing its momentum, and they expect both the U.S. stock market and the dollar to decline by the end of the year. This sentiment is further supported by the fact that the percentage of fund managers who consider U.S. stocks overvalued has reached its highest level in over two decades, with 90% of respondents sharing this view.



The U.S. Investor Sentiment, % Bullish, has increased to 40.96% compared to 39.27% last year, but it remains below the long-term average of 37.71%. This indicates that while there is still some optimism among U.S. investors, it is not as pronounced as it once was.

The recent trends in investor sentiment towards the U.S. market can be contrasted with the European market, which has seen an increase in investor sentiment. The Europe Stoxx 600 index and the German DAX index both reached record highs in February 2025, reflecting the growing confidence in the European market.

In conclusion, the recent trends in investor sentiment towards the U.S. market suggest a cooling off in the once-ubiquitous narrative of "American exceptionalism." The relative underperformance of U.S. equities, the views of fund managers, and the U.S. Investor Sentiment, % Bullish, all point to a decrease in investor confidence in the U.S. stock market. As investors reassess their portfolios and consider alternative investment destinations, the European market has emerged as a strong contender, with European stocks outperforming U.S. stocks year-to-date.