Wall Street investors are moving out of the U.S. fast in 2025, pouring money into international markets after Donald Trump’s latest trade and foreign policy chaos shook up investor confidence.
U.S. markets are falling across the board while funds chase returns in countries most investors have stopped paying attention to.
The iShares MSCI Emerging Markets ETF (EEM) is up more than 7% this year, and the iShares MSCI EAFE ETF (EFA), which tracks developed markets outside North America, has jumped over 11%. At the same time, all three major U.S. indexes are down.
The Nasdaq Composite has fallen into correction territory. The S&P 500 briefly dropped into correction, too. The Russell 2000, which covers smaller U.S. companies, is almost in a bear market with a drop nearing 20% from its recent high.
Investors started backing away from U.S. stocks as Trump’s unpredictable tariff policies bounced between threats and backpedals. That shook confidence in both consumers and businesses. The market saw it clearly. Big firms started warning clients that the U.S. was no longer the safest play.
Citigroup, Bank of America, HSBC, and BCA pull back on U.S. bets
Citigroup cut its U.S. stock rating from overweight to neutral earlier this month. Dirk Willer, one of their strategists, told clients, “The news flow from the U.S. economy is likely to undershoot the [rest of the world] in coming months, and at least tactically, U.S. exceptionalism is therefore unlikely to roar back.” That’s straight from their client note.
Michael Hartnett at Bank of America had already warned in January that U.S. strength was topping out. He pointed to falling fiscal stimulus and a fading edge over other markets. HSBC and BCA Research also lowered their views on the U.S. around the same time. Nobody’s calling it safe anymore.
Jeremy Folsom, an analyst at Wells Fargo Investment Institute, broke it down in a research note this week. “While U.S. stocks have performed well in recent history, investors who remain concentrated within just a single market may leave their portfolios vulnerable to country-specific risks, such as shifts in political regimes and other idiosyncratic factors,” he wrote. Jeremy added, “We have encouraged investors to remain invested in developed market (DM) equities, given the attractive valuations, and emerging market (EM) equities, for potential growth. We believe that both can help to provide diversification to portfolios.”
Germany rallies as Trump threatens NATO, and China jumps on defense boost
Investors aren’t just running from the U.S. They’re finding reasons to go long in places like Germany and China. Germany’s DAX index is up more than 15% in 2025. That came after the German government approved new spending on infrastructure and defense. Why? Because Trump signaled that he might pull back U.S. support for NATO. According to NBC News, the Trump administration is considering stepping away from NATO command, a role the U.S. has held since Eisenhower. That kind of move has major consequences, and investors are watching every headline.
With Germany approving more military and public spending, investors think the country could finally break out of its long slump. Germany just barely avoided recession in 2023 and 2024. The country’s move to spend more has started lifting market sentiment. The STOXX Europe 600, which tracks European stocks more broadly, is also up about 9% this year, mostly thanks to the rally in Germany.
Trevor Yates at Global X said this will likely reach more parts of the economy. “I think it’ll have kind of a trickle-down effect on the rest of the economy and then different sectors as well. It will affect consumers, I think, down the line as well, just given how much pressure they’ve been over the past couple years.” Trevor also said Global X is telling investors to look at group-based strategies like ETFs because “the whole economy should see these benefits.”
Over in China, stocks are soaring even faster. The iShares MSCI China ETF (MCHI) has gained around 21% in 2025. The iShares China Large-Cap ETF (FXI) is up more than 22%. Investors are coming back after Beijing approved a 7.2% increase in defense spending to “firmly safeguard” national security. The rally also got a push from rising interest in DeepSeek, which helped bring investors back to Chinese tech and innovation.
The possible return of Trump tariffs has added fuel to these global markets. Investors don’t think the tariffs are just a bluff this time. They’re starting to act like real policy. That means the trade system could be changing fast. And Wall Street is not waiting around to find out how bad it gets.
Analysts warn of deeper realignment if U.S. economy stumbles
Katie Stockton at Fairlead Strategies said international stocks could keep outperforming the U.S. this year. “We do think that international markets have the potential to do better than the U.S. for much of this year,” Katie said. “That doesn’t mean they’re buys right here and now, but perhaps somewhere, people might want to build some relative exposure into the next downdraft and develop global Europe versus US.”
Dario Perkins at TS Lombard wrote a note titled “Is the U.S. now uninvestable.” That’s the tone right now. Dario wrote, “Three months ago, investors were convinced that Trump 2.0 would make a bad situation in Europe and China even worse. Instead, Trump has become a catalyst for big policy changes.” He said both Germany and China had already responded and more countries would follow. “It is still early days, and there may be setbacks, but these policy shifts could mark the start of a major realignment in international trade and a genuine rebalancing of global demand.”
But he ended with a warning: “Make no mistake – a US recession would bring down the entire world.”
That’s where things stand. Trump’s policies are causing global money to move. Countries that used to get ignored are now pulling in capital.
This isn’t some short-term strategy. It’s the result of economic data, policy moves, and hard numbers. No one’s calling the U.S. uninvestable yet, but they’re clearly not betting on it anymore. And if Trump keeps pushing on trade and defense, expect the money to keep flowing out.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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