Barclays: The American exceptionalism argument is temporarily ineffective. It's time to go long on European stocks and short on American stocks.

Barclays Bank's global stock trading strategy director Alexander Altmann said that as the US stock market faces increasing risks, such as economic uncertainty and the concentration of gains in a few companies, now is a good time to shift to other stock markets. Alexander Altmann recommends "shorting the US exception thesis" - at least temporarily when US stock valuations are at historical highs. He emphasized, "This does not mean that I hold a structurally bearish view on the US exception thesis." "This is tactical, I just think that this narrative has limited upside in the short term." Over the past two months, Alexander Altmann's optimism about the European stock market has been validated. Despite the looming shadow of US-EU trade wars, European stock market benchmark indices have benefited from solid optimism in corporate earnings, lingering at historical highs. In US dollar terms, the performance of the European Stoxx 600 index relative to the S&P 500 index since the beginning of the year has seen the best start on record, partially due to the stagnation of US tech giants. In recent years, US stocks driven by large tech stocks have consistently outperformed European stocks, with a total return rate over the past five years roughly double that of European indices, accumulating nearly 100%. However, market sentiment seems to be shifting towards the cheaper European stock market. A survey by a US bank last month showed that investors' allocation to European stocks has shifted from an underweight of 22% to an overweight of 1%, marking the second-largest increase in European stock market exposure in the past 25 years. Political trends in the UK and France are stabilizing; policymakers at the ECB and the Bank of England are looking increasingly dovish, especially compared to the Fed. The risks of trade frictions are reinforcing these monetary policy expectations. Blackrock Investment Institute strategists said Monday that they are tactically increasing their holdings of Eurozone government bonds because they expect any potential tariffs and subsequent retaliatory actions to damage the region's growth. At the same time, the so-called "Magnificent Seven" stock index in the US has seen a flat performance at the start of 2025, with investors increasingly skeptical of the US's dominant position in artificial intelligence (AI) technology development. US bank strategists also agree with Alexander Altmann's views. Strategists pointed out last week that the influence of large US tech stocks is diminishing, and emphasized that many other global markets have higher returns than the S&P 500 index this year. Alexander Altmann stated that the message being conveyed is that strategies that have been very effective in the past two years may not be as effective this year, and investors should look for opportunities outside of US stocks and AI trading. He also noted that hedge funds' long positions are high, putting US stocks in an unstable position. While bullish on the European stock market, Alexander Altmann also warned that European stock markets may become more volatile later this month ahead of the German elections, although this may create buying opportunities. In the US stock market, Alexander Altmann sees potential upside in certain sectors, mentioning stocks in materials, industrials, and energy sectors, while previous data showed that the US manufacturing PMI returned to expansion territory for the first time since 2022 last month.