- In 8 of the 12 past calendar years, US equities have been the top or 2nd best performer
- US large cap sector performance is undergoing a major rotation, with technology stocks selling off -8.86% and consumer staples rallying 6.5%3
- European equities are leading financial markets year to date, up 10.8% as at 28/02/20254
There has been a sea change in the top performing equity markets so far this year with all the enthusiasm from Trump’s presidential win now being wiped out from the US large cap stock market and seemingly being redirected to Europe and the UK. As we’ve been writing about in recent weeks, trade policy uncertainty and inflation risks are beginning to weigh heavily on the US stock market, and investors are flocking to cheaper areas of the global market to provide some defensiveness from emerging US economic weakness. Given the US has been a top performer for many of the past 12 years, their valuations have become stretched and are currently trading within their 98th percentile since 19201.
World Stock market returnsÂ
Source: JP Morgan, 2025
US rotation
Unlike other developed markets, the US economy has steadily posted above trend growth since the Federal Reserve began to increase interest rates in Q1 of 2022. Consensus was that this robust demand was likely to continue into this year, however a recent string of softer data has cast doubts around resiliency and, policy surprises have dampened sentiment further. Household surveys have reflected this and are now signalling a decline in confidence along with increased inflation expectations. This could be seen in January’s 0.5% decline in personal consumption despite positive income growth2.
The sectors driving US large cap positive performance have undergone a pronounced shift year to date due to these factors, as shown in the graph below.  Although this is somewhat masked by the index only moving downwards -1.62% (at the time of writing), nearly all sectors that performed well last year haven’t been able to continue positivity into 2025. US technology optimism over AI dominance has been challenged by AI disrupters out of China recently, first by DeepSeek and only yesterday by Alibaba claiming to have created their own models for a fraction of the cost and without requiring the best US produced chips. Away from the US, developed economies are now experiencing positive economic surprises which makes non-US regions more attractive and is weighing on the Dollar and treasury yields.
US large cap sector returns in 2024 and year to date in 2025
Source: Morningstar, 2025
Bowmore PortfoliosÂ
We’ve been conscious of the lofty valuations that US stocks have been trading on for some time and have positioned portfolios to be diversified should we see valuation contraction in the region. In doing so, we have sought after opportunities in markets that have become both relatively and absolutely cheap. Our recent notes have spoken on the opportunity in China, but we also find opportunities in our domestic and neighbouring (European) markets.
European equities have been the best performing developed market year to date, despite lagging in 2024 (returning 8.1%). We allocate to the region via a blended and active approach with a criteria of robust earnings growth, competitive advantages and strong market positions. The fund emphasises bottom-up stock selection and its investment process has led to investments within businesses like Siemens and Deutsche Telekom. The fund has returned 13.2% year to date while yielding 3.02% of income.
Source: LSEG DataStream, data as at 06/03/2025
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1 Wall Street Journal, 2025
2 Numera Analytics, 2025
3 S&P Global, 2025
4 JP Morgan, 2025
