The Wall Street paradox. We’re at all-time highs, but many investors are turning cautious

Is everything really okay on Wall Street? Not exactly, according to the latest trading sessions, which have seen US stock indices waver several times, not only due to fears surrounding the potential direction of the Fed’s interest rate decisions but also, and above all, due to the usual suspects that periodically surface in New York: those concerning the valuations of AI (artificial intelligence) companies, which are perhaps trading at levels that are far too inflated.

That said, fears aside and excluding the losses of these first few days of November, the main stock market indices remain hovering near record highs, so much so that, one year after the US elections of November 5, 2024, which decreed Donald Trump’s victory, the S&P 500 is hovering around values that are 19.6% higher on an annual basis: thanks to the strong quarterly results announced by U.S. corporations in these 12 months and investors’ enthusiasm for artificial intelligence.

The US stock market trend is "an undeniable victory for US President Donald Trump," as the CNN article reported, referring to a rally no one had expected, especially after the flight from US stocks that began last April, when the S&P 500 collapsed to -19% in a month, following Liberation Day, the day Trump unveiled his tariffs against the world.

That shock, and the numbers prove it, has since subsided, and Wall Street has steadily posted gains, giving Trump and his administration more than one reason to cheer. Perhaps too much.

Wall Street at its highest, but more and more investors are fleeing, looking elsewhere. The "Trump Dump"

All that glitters is not gold, however, one might remember, because when asked whether the performance of US stocks, even excluding these first few days of November, has really been so brilliant, the answer is "no," despite the records set by the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average.

The truth is that many investors have been distancing themselves from Wall Street for quite some time now. But in what sense, some might object, given the all-time highs reached just a few sessions ago?

In the sense that many investors, who previously bet all or a lot on US stocks, have looked elsewhere, with a view to portfolio diversification that no longer sees US stocks playing the largest share, compared to what used to happen. It’s all Trump’s fault, apparently, as is clearly evident from the title of another article published on CNBC, which indicates that global investors are still hesitant to bet everything on the United States.

It all started in April, precisely, the day Trump announced his new tariffs, which resulted in wild sell-offs that knocked out not only Wall Street, but also Treasuries, and the dollar.

The trades by which various funds sold off U.S. equities have been dubbed variously. In some cases, it was called the "Sell America" trade, while in others, it was called sell-offs in line with the "ABUSA" trend, an acronym for "Anywhere But the USA."

In the following months, with Trump backtracking on the trade war he had previously launched with monstrous tariffs, a trade nicknamed ‘TACO’ (‘Trump Always Chickens Out’), as the CNBC article noted.

There was one factor that united all these trading strategies, and which continues to this day: investors began to look elsewhere, and to consider exiting Wall Street.

Dave Nadig of ETF.com explained to CNBC:

"The average investor has too much of their money invested in the United States. Exiting the US in some way is something I’m hearing more and more about among investors."

In this context, Daniel Coatsworth, head of markets at AJ Bell agreed that although the major US stock indices have rebounded from their bottom in April, moving from panic to renewed optimism driven by AI enthusiasm, foreign investors’ appetite for portfolios not dominated by US equities has increased.

Coatsworth spoke of a "Trump Dump trend that he believes is still active.

“We’ve seen growth in global ex-U.S. funds. Many private investors buy global funds every month to gain broad market exposure. But now we’re seeing many people discover global funds that don’t actually include the US: this way, they maintain broad international diversification, but deliberately exclude the US market.”

Exodus to other global ex-US indices, the indices that are outperforming the S&P 500

Result: Several global indicators show that international ex-U.S. equities have ultimately outperformed Wall Street since the beginning of 2025.

Just look at the trend of the MSCI World ex-USA Index, which includes large- and mid-cap companies from 22 developed market countries outside the United States, and which has jumped 24% since the beginning of 2025, compared to the S&P 500’s +15.6% gain over the same period.

The two factors that are driving investors to abandon the US stock market

Two factors, to be precise, are apparently pushing many investors to abandon the United States, as Coatsworth further explained:

"One could be that [investors] feel they have enough exposure (to Wall Street), which is why they don’t want to continue adding further exposure, given that the United States already has a significant impact on global equities. The other reason is perhaps their opposition to what is happening in America. Some are not liking the way the (US) government is being run by Trump. So you can talk about a bit of a rethinking, in the true sense of the word, of asset allocation."

Added to this is the fact that, given the unpredictable policies adopted by the White House, along with concerns about U.S. equity valuations and the potential presence of an AI bubble on Wall Street: One thing I know is that our clients are concerned about the extreme concentration of the stock market, especially when compared to Europe, which is very diversified, noted Christoph Schon, head of investment decision research at Danish investment firm SimCorp, also interviewed by CNBC.

Schon was referring to the stocks known as the Magnificent Seven’ stocks, namely Apple, Tesla, Alphabet-Google, Microsoft, Meta, Nvidia, Amazon, about which an alert was also launched by the ECB earlier this year.

These are 7 Big Tech companies that account for a full 1/3 of the S&P 500 index’s market capitalization and have therefore effectively dominated the U.S. stock market benchmark, determining its direction.

Moreover, Schon explained, the stocks "are concentrated in three sectors: IT (Information Technology), communication services, and consumer discretionary, all highly cyclical." This, "contrary to the 10 top names in the STOXX Europe 600, which represent 17% of the market capitalization (of the index), half that of the Magnificent Seven, and which belong to the technology, healthcare, energy, finance, and consumer sectors."

In short, Donald Trump may be able to gloat, vindicating himself against those who predicted a sharp correction in U.S. equities. But the numbers show that many investors no longer consider the US stock market a sort of investment Eldorado. And some are seeing a decidedly bleak outlook for Wall Street stocks.

Original article published on Money.it Italy 2025-11-07 12:46:00. Original title: Il paradosso di Wall Street. Siamo ai massimi storici, ma tanti investitori gettano la spugna