Why the US market may no longer be your best global bet

For years, Indian investors looking to diversify globally have had a singular focus—the US. And why not? The past decade saw US equity markets outperform all others, delivering a compounded annual growth rate (CAGR) of more than 19% in USD, largely fuelled by a booming tech sector.

However, the narrative is shifting. After a strong start to 2025, US equity markets have hit turbulent waters. Tariff concerns loom large as President Donald Trump imposes fresh trade barriers and threatens more, with no clear resolution in sight.

Consumer sentiment has been the biggest casualty of this uncertainty, with surveys showing a sharp decline. In February, consumer confidence saw its steepest drop since August 2021. Notably, the expectations index—tracking short-term outlook on income, business, and jobs—fell below June 2024 levels. Meanwhile, 12-month inflation expectations surged from 5.2% to 6%.

Also read: FPI jitters: Are foreign investors losing confidence in Indian markets?

Despite market turbulence, core economic indicators remain relatively stable. A rebound could occur if either Trump eases tariffs (Trump Put) or the Fed steps in with rate cuts (Fed Put) to boost sentiment. However, ongoing policy uncertainty is already weighing on corporate and consumer spending, signalling an inevitable economic slowdown. Coupled with stretched valuations, US equities face a challenging outlook in the near term.

On the other side of the Atlantic, major macro tailwinds are playing out for European equity markets, including interest rate cuts by European Central Bank (ECB), increased defence spending, removal of budgetary brakes by the German government, and the potential of the war ending in Ukraine. 

Europe has unveiled a €800-billion plan