‘US exceptionalism’ on shaky ground amid downturn fears

Speculation is intensifying across the financial world that US President Donald Trump is willing to tolerate hardships in the US economy and markets in pursuit of his long-term goals involving tariffs and smaller government.
The threat of an economic downturn has weighed on the broader market, with the S&P 500 down nearly 9% from last month’s record high.
Trump has said the US economy faces “a period of transition,” deflecting concerns about the risks of a cooldown as his early focus on tariffs and federal job cuts causes market turmoil.
Asked whether he’s expecting a recession, Trump said, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big.”
Amid a historic global trade war, a proposed $1.2tn European fiscal bazooka and the emergence of China as tech race leader, global flows of money are being upended, marking a potential turning point for investor capital away from the US.
China unlocked more stimulus last week and promised greater efforts to cushion the impact of an escalating US trade war. Earlier, Germany’s likely next government agreed on the biggest overhaul to fiscal policy since the country’s reunification.
Meanwhile, US economic data points to a weakening, and the trade war unleashed by US tariffs that kicked in last week is hurting sentiment inside and outside the world’s biggest economy.
For most of the last three years, investors had bet on “US exceptionalism,” with the country ahead of others in economic growth, stock prices, artificial intelligence and other areas.
“The world now sees the US model is changing, and saying — we need to adapt to that, the US is no longer as reliable as a trade partner, we have to take care of our own needs on defence,” said Tim Graf, head of macro strategy for EMEA at State Street Global Markets.
The change in sentiment has fuelled a rare divergence in global stock markets.
While the S&P 500 stock index is down this year, European shares are up almost 9% at a record high, and tech stocks in Hong Kong have surged almost 30%.
The euro shot to a four-month high above $1.07 last week and a number of banks have raced to ditch their recent calls for a drop to parity against the dollar.
Investors have chopped their bullish bets on the dollar in half to around $16bn since Trump’s inauguration in January, based on weekly data from the Commodity Futures Trading Commission.
Tariffs and trade uncertainty are causing the US economy to lose steam, and companies more vulnerable to slower growth are starting to show the cracks.
An index of US banks lost 8% in the last month, while its European equivalent has jumped 15%.
One of the great US stock market draws has been its megacap tech shares. Nvidia, in particular, has become the poster-child of the AI investment revolution and one of the world’s most valuable companies.
But the emergence of DeepSeek not only shattered assumptions about the cost and efficiency of the race to build out AI, but of how close behind Western companies China really was.
A chorus of Wall Street strategists is warning about rising volatility in the stock market.
Market forecasters at banks including JPMorgan Chase and RBC Capital Markets have tempered bullish calls for 2025 as Trump’s tariffs stoke fears of slowing economic growth.
Citigroup strategists have downgraded their view on US stocks to neutral from overweight, saying the hegemony of US stocks is on pause, at least for now.
“US exceptionalism is at least pausing” for the coming few months, the strategists wrote. “The news flow from the US economy is likely to undershoot the rest of the world in coming months.”