US Exceptionalism Takes a Bad Turn: Trump Becomes a "Big Short"?

TradingKey - Trump is waving the flag of tariffs abroad, while Musk is driving a wave of government spending cuts at home. Coupled with the rise of China's technological strength and a major turning point in European policies, the once-unique appeal of US assets is gradually losing its luster.

After the market closed last Friday (March 7th), the S&P 500 index fell 3.1% for the whole week, marking its largest single-week decline since September 2024, and the Nasdaq index entered correction territory. Notably, NVIDIA (NVDA.US) and Tesla (TSLA.US) both dropped by approximately 10% in a single week.

The US Dollar Index (DXY) has continued its downward trend, declining form around 109 at the beginning of the year to below 104, currently at 103.81.

Wall Street's capital market narrative under a potential Trump 2.0 administration is undergoing a transformation: Before and after Trump took office, economic policies such as tax cuts and deregulation fueled sustained investor optimism in the U.S. stock market’s bull run. However, recent developments—including Trump’s unpredictable tariff policies, his hardline stance on the Russia-Ukraine conflict, and Musk’s advocacy for government spending cuts through DOGE—have increased investor risk aversion.

Meanwhile, Germany's large-scale fiscal stimulus plan is leading a broader policy shift in Europe, while China’s advancements in large language models have attracted global capital to non-U.S. regions. This shift has fueled a trend described as"the East rising and the West falling".

The share of the U.S. stock market in the global market has steadily declining from its peak of over 50% at the start of the year

According to EPFR, as of March 5th, overseas passive funds have flowed into the Chinese market for nine consecutive weeks. There has been a noticeablel acceleration incapital flows into Germany and France. While funds are still entering the US stock market, the pace has slowed significantly.

Industry insiders pointed out that, for the first time, investing outside the United States is being seen as a highly persuasive strategy—marking a significant shift.

Morgan Stanley noted that although recent disruptions in Europe and other regions are unlikely to permanently undermine the U.S.'s position as the world’s largest and most resilient market, the current rotation has room to continue.. This shift is "entirely possible" for the next 6 to 12 months.