Investment strategies focused on the 'Trump trade' have suffered heavy blows, and Wall Street is increasingly convinced that simply betting on American assets will fail completely.
As Donald Trump returns to the White House at the start of his second presidential term, Wall Street traders' strategies are unanimous and clear: a full focus on the so-called 'Trump trade': betting heavily on assets related to the 'America First' policy—those that benefit from the 'American exceptionalism' from$Tesla (TSLA.US)$Stocks,$Bitcoin (BTC.CC)$to various Cryptos, and then$S&P 500 Index (.SPX.US)$to these two core American assets—the US dollar.
However, it has been proven that in the context of a drastic shift to aggressive policies such as imposing tariffs and expelling immigrants, leading to a comprehensive deterioration of economic data like inflation and consumer confidence, and the Trump administration's cabinet refusing to lend a hand to the declining U.S. stock market, this concentrated bet on American Assets has become the most failed choice in the "Trump 2.0 era" so far.
As the investment strategy focused on the "Trump trade" has suffered a heavy blow, Wall Street traders and global investors are increasingly convinced that merely betting on American Asset investment strategies based on the logic of "American exceptionalism" will completely fail.
This is undoubtedly bad news for the followers of this strategy (including timing investors and concentrated holders) - Wall Street has just experienced another brutal trading week. With the escalation of global trade tensions, risk asset bulls faced multiple bearish blows on Friday: a sharp decline in U.S. consumer confidence, a significant rise in the Fed's favorite inflation gauge (just before the "April 2 reciprocal tariff liberation day"), and U.S. consumers' long-term inflation expectations reaching the highest level since February 1993.
Ultimately, the U.S. stock market experienced what can only be described as "Black Friday" on Friday - $NASDAQ 100 Index (.NDX.US)$ plunging 2.6%, down nearly 10% for the year, with the three major U.S. stock indices falling for three consecutive trading days, which once led the U.S. stock market into a long-term bull market. $NVIDIA (NVDA.US)$ The weekly decline reached 6.82%, and credit risk indicators soared. Safe-haven assets celebrated collectively on Friday, with U.S. Treasury bonds soaring and Gold reaching a new historic high.
The underlying logic of the "Trump trade" collapse - cracks in the "American exceptionalism" narrative.
American exceptionalism generally refers to the belief that regardless of how the global economy evolves, U.S. economic data, along with U.S. stock and bond markets, will exhibit far greater resilience and stability compared to other countries, continuously attracting incremental funds from all over the globe into dollar and U.S. stock and bond markets. In other words, "American exceptionalism" means that even during global economic turmoil, funds often choose U.S. assets as a "safe haven" or as a priority for long-term allocation. Therefore, the U.S. economy, stock market, and bond market can consistently receive incremental injections of international funds.
However, the recent series of major tariff policies initiated or proposed by the Trump administration, particularly its actual tariff measures targeting major trading partners like Canada, Mexico, and China, as well as the 25% tariffs imposed on all imported steel and aluminum, have further frightened the U.S. stock market, causing an increasing number of investors to worry about the risks of the U.S. economy falling into "stagflation" or even "deep recession," which is the core logic behind the recent continuous decline of U.S. stocks.
The series of tariffs imposed by Trump, who is returning to the U.S. presidency, has severely impacted the confidence index of American businesses and consumers, significantly raising consumer inflation expectations along with expectations of economic stagnation and recession, leading global institutions and individual investors to adopt a more cautious investment sentiment towards the U.S. market. Since February, when Trump's new administration focused entirely on the tariff policies, an increasingly large scale of global capital has fled the U.S. stock market.
The market had eagerly anticipated that the so-called "Trump Put Options" would significantly boost the underperforming US stock market this year, but neither Trump nor US Treasury Secretary Mnuchin has revealed any supportive or reassuring stance toward the US stock market. Instead, they emphasized that as the US economy will free itself from dependence on government spending, it may inevitably experience a "detox" period.
Trump himself stated that the U.S. economy will go through a "transition period" and that the disturbances inevitably brought by tariffs are necessary, emphasizing that tariffs are intended to make America prosperous again and to "Make America Great Again." Trump has repeatedly downplayed market concerns over an economic recession in the U.S. and has predicted that the country will not fall into recession. "You can't just keep watching the stock market; it will go up and it will go down. But you know what, we have to rebuild our country."
In response, investors began to withdraw from US risk assets, aggressively selling off the best-performing tech giants in the long bull market in US stocks that began in October 2022 to realize profits. At the same time, the immense uncertainty brought by the Trump administration, particularly the significant pressure on the macroeconomic level, caused investors to remain cautious instead of choosing to "buy on dips" as usual.
Meanwhile, "non-U.S. stock markets" such as those in China and Europe, as well as safe-haven assets like Gold and U.S. Treasuries, are increasingly favored by hedge funds and traditional investment institutions on Wall Street. The NASDAQ 100 Index has dropped nearly 10% this year, while the S&P 500 Index has fallen over 5%. In contrast, covering... $BABA-W (09988.HK)$ 、 $TENCENT (00700.HK)$ 以及 $XIAOMI-W (01810.HK)$ Including$Hang Seng TECH Index (800700.HK)$Since the beginning of this year, an increase of over 20% has been seen, with a monthly increase of as high as 18% in February.
Under the exceptionally strong defense and infrastructure fiscal stimulus in Germany, the European benchmark stock index covering a wide range of symbols — the Stoxx 600 Index, is heading towards the strongest first quarter performance relative to the S&P 500 Index in the past decade. Bank of America cited EPFR global data stating that US stock funds experienced the largest weekly outflow of funds this year, while money continues to flow into European stock markets.
However, it is noteworthy that the long-standing safe-haven dollar has completely failed to keep up with the wave of soaring values of safe-haven assets, performing far worse than another safe-haven currency — the yen this year. The core logic behind this is that the escalating tariff measures and actions aimed at reversing globalization by the Trump administration are shaking confidence in the U.S. economy and the dollar, while U.S. bonds have attracted safe-haven funds due to their strong yield approaching 5% at one point.
"The Trump trade" has suffered a heavy blow, and "diversified allocation" returns to the investment spotlight.
The continued weakening of U.S. stocks and the dollar undoubtedly poses a new round of impact on investors who are committed to macro themes or betting on cutting-edge technology (such as the theme of 'American exceptionalism' or the era of seven tech giants), with few able to escape unscathed, while investment institutions that have long advocated for diversified investments and 'diversified allocations' of global assets have become the big winners in the financial markets this year.
"We are faced with persistent high inflation pressure, geopolitical risks, and a daily rising probability of recession," said David Schassler, head of multi-asset solutions at VanEck. "For asset allocators, the worst thing is to set up a binary bet in the portfolio. Diversifying asset allocation is absolutely necessary."
A diversified portfolio including systemic trades, inflation-hedged real assets like commodities, and cheap value stocks, along with non-U.S. equity markets like China and Europe, is once again leading the global market. This group of market winners may vary, but can be referred to as the true 'Trump 2.0 era trade': a dynamic hedging strategy in an era of policy uncertainty.
The signs of slowing growth and stubborn inflation have turned the previously reliable "American exceptionalism" based "Trump trade" into a complete loser. Data released on Friday showed that consumer inflation expectations have surged to their highest level in 32 years, while key price indicators strengthened and consumer spending was weaker than expected. Economists are downgrading the GDP growth forecast for the USA and raising inflation expectations.
On the highly anticipated "Liberation Day on April 2nd," the Trump administration announced a 25% tariff on imported autos and promised a series of global "reciprocal tariffs" to be introduced on April 2nd.
The S&P 500 Index fell 1.5% this week, accumulating a decline of more than 5% in the first quarter; the "Big Seven" of U.S. stocks, which have led the U.S. market into a long-term bull market since 2023, are experiencing their worst first quarter in at least a decade. Meanwhile, the period from 2025 to date, that is, the "Trump 2.0" era, has become one of the best times for a "diversified asset allocation" strategy in recent years - the excess return of the S&P Multi-Asset Risk Parity Index relative to the S&P 500 reached 7 percentage points, creating the largest gap since 2018.
Traders seeking excess returns in a highly volatile market have largely achieved positive ROI by avoiding centralized holdings (especially dominated by the Big Seven in the S&P 500 and Nasdaq 100) and shifting to diversified asset allocations and international stocks.
Statistics compiled by Bloomberg Intelligence analyst David Cohne show that actively managed large-cap growth stock funds with heavy positions in the "Big Seven" (over 40% holdings) have averaged an 8% decline this year, while the cross-asset quantitative multi-factor strategy compiled by Societe Generale has increased by 3.5%.
"If uncertainty continues to dominate the market, diversified allocations will enter a bull market," said Paisley Nardini, an asset allocation strategist at Simplify Asset Management. "The market focus for 2025 has shifted to diversified allocations, with some areas that were previously neglected by the market now receiving returns."
Global capital may increasingly favor China and other 'non-US stock markets' + safe-haven assets.
Looking at the investment returns of hedge funds globally this year so far, the secret to outperforming peers and benchmark indexes since 2025 seems to be just one principle: invest in Chinese technology stocks.
"Recently, the shift in investments from the US market to the Chinese market may signal a recovery in the proportion of Chinese assets in foreign portfolios," said Gary Dugan, CEO of The Global CIO Office. "Especially, the significant valuation gap between tech giants in the Hong Kong stock market and those in the US continues to present huge upside potential for Chinese tech stocks."
As the global trade war initiated by US President Trump raises concerns about 'stagflation' or even a deep recession in the US economy, Wall Street traders and the broader global investors are increasingly hesitant to 'buy the dip' in US stocks, and have found a new investment direction with advantageous valuations, strong fundamentals, and AI capabilities that are on par with the US: the Chinese stock market.
For a long time, the investment community has almost unanimously agreed that the tech giants in the USA are still the highest quality companies globally, possessing market dominance, incredible profitability, and ample cash reserves. However, the current question is whether these advantages have already been reflected in the current stock price curve. Moreover, current valuations are significantly higher compared to the historically low levels of 2022, especially when considering the slowing US economic growth and the possibility that enormous investments by companies in AI may not meet expectations, alongside the formidable rise of Chinese tech giants this year with advantageous valuations and robust profit potential, which raises the question of whether these advantages are facing threats.
For the Chinese stock market—which includes the Hong Kong and A-share markets—DeepSeek's groundbreaking launch of a "super low-cost AI big model" is driving deep penetration of big models across various industries in China. Additionally, Alibaba's strong performance and its ambitious "AI super blueprint" have become unprecedented "bull market catalysts" for global investors to reassess Chinese assets, who had already expressed concerns about the increasingly high valuations of US tech stocks.
Financial markets previously thought that before "April 2nd when the Trump administration announced reciprocal tariffs," foreign entities like Wall Street might downgrade the outlook or target levels for the Chinese stock market and other 'non-US stock markets' due to the pressure of tariffs, but Wall Street financial giants Goldman Sachs and Morgan Stanley have collectively expressed bullish sentiments on the Chinese stock market.
For a long time, Morgan Stanley (hereinafter referred to as "Morgan") has been cautious about the Chinese stock market, but this year it has raised its index target for the second time. The core logic that this institution is bullish on the Chinese stock market further lies in the sustained improvement in corporate profit growth expectations and a more optimistic outlook on economic growth and monetary policy under the AI boom triggered by DeepSeek.
The Goldman Sachs stock strategy team pointed out in their latest report titled "Global marketing feedback: China is back" that overseas investors' interest and participation in the Chinese stock market have now risen to the highest point in nearly four years, and this round of gains in the Chinese stock market will be more sustained than the rise seen in September last year.
According to Goldman Sachs' bullish expectations, the MSCI Chinese Index and the CSI 300 Index still have room for upward movement this year. The Goldman Sachs analysis team has raised the target levels for the MSCI Chinese Index and the CSI 300 Index to 85 points and 4700 points, respectively. The MSCI Chinese Index has entered what is known as a "technical bull market", encompassing core Chinese assets such as Alibaba, Tencent, Kweichow Moutai, and China Yangtze Power, currently hovering around 75 points.
Safe-haven assets have also performed brilliantly, with spot and futures prices for Gold reaching historic highs throughout the year, with quarterly gains expected to reach 17% (which would be the best since 1986). In the past two months, major global Gold ETFs have attracted over 12 billion dollars in assets, marking the largest scale since the same period in 2020.
Statistics show that,$VanEck Real Assets ETF (RAAX.US)$ has significantly outperformed the S&P 500 Index this year, partly thanks to Schassler's leadership three years ago in boosting gold allocations to the maximum level, and he even predicts that Gold prices could reach 5000 dollars in the next 18-24 months.
The Bank of America strategist Hartnett, known as "Wall Street's most accurate strategist," has repeatedly mentioned the strategy of "diverse allocation." This strategist, who has accurately predicted the timeline for the peak of the U.S. stock market multiple times since the pandemic, has frequently urged investors to allocate to international stock markets and to go long on Gold since the beginning of this year. It has been proven that his "BIG strategy"—which entails holding U.S. Treasuries, international stocks (excluding the USA), and Gold (Bonds, International, Gold) for the long term until 2025—can indeed provide investors with a much stronger overall ROI this year compared to the "Trump trade."
Wall Street institutions are rapidly shifting towards a defensive stance, opting to allocate a portion of their positions to long-neglected Gold, value stocks, and non-U.S. international stocks. HSBC's head of multi-asset strategy, Max Kettner, has downgraded U.S. stocks, investment-grade bonds, and junk bonds ratings to "underweight" this week due to deteriorating U.S. data and aggressive tariff policies, and has further increased holdings in Gold to hedge against stagflation risks.
However, the institution believes it is too early to assert that "American exceptionalism" has completely ended. "We are tactically becoming more cautious and are reducing our holdings in U.S. stocks and U.S. risk assets," Kettner stated. "But from a long-term structural perspective, the claim that American exceptionalism is completely over is an exaggeration."
Editor/rice
