Despite a slow start to 2025, US equities are expected to rebound as economic growth and corporate earnings remain strong, according to leading Wall Street strategists.
After years of dominance, the S&P 500 Index has underperformed international markets this year. Uncertainty surrounding President Donald Trump’s trade and immigration policies, along with concerns about high stock valuations, has led investors to explore opportunities elsewhere. Additionally, the rise of Chinese AI companies, such as chatbot startup DeepSeek, has fueled worries that the US may lose its leadership position in artificial intelligence.
The S&P 500 has risen just 2% in 2025, compared to a 9% surge in Europe’s Stoxx 600 Index and an 18% increase in the Nasdaq Golden Dragon China Index. Meanwhile, the tech-focused Magnificent Seven stocks—which drove much of the US market’s previous gains—have struggled, with their index falling 1.9% this year.
Despite the shift away from US stocks, Morgan Stanley strategist Michael Wilson believes the trend will not last. Once bearish on US equities, Wilson now argues that the S&P 500 remains the highest-quality index with the strongest earnings growth potential.
“It’s premature to conclude the rotation away from the US is sustainable,” Wilson stated in a note.
Similarly, JPMorgan strategist Mislav Matejka acknowledged that a slowdown in big tech earnings could limit US market outperformance. However, he emphasized that the US still maintains a wide advantage in economic growth and earnings over the rest of the world.
“We do not advocate an underweight US position,” Matejka wrote.
He highlighted that a significant decline in US earnings growth would be required for a truly bearish outlook.
While short-term market fluctuations have favored international stocks, some analysts suggest a broader realignment in global investing may be underway. US stocks—particularly large-cap growth stocks—have reached historically high valuations, while international value stocks appear relatively inexpensive.
Research Affiliates, an investment research firm, predicts that US large-cap growth stocks could see annualized returns of just 1.8% over the next decade, potentially negative when adjusted for inflation. By contrast, non-US value stocks could generate 10% annual returns, with emerging market value stocks forecasted to perform even better.
With input from Bloomberg and the Wall Street Journal.
