As the clouds of economic uncertainty loom over the American stock market, investors are increasingly worried about the precarious situation. Market volatility, combined with the over-concentration of earnings in a handful of companies, raises questions about the sustainability of the current bullish narrative. At this pivotal moment, Alexander Altmann, the global equity trading strategist at Barclays, has voiced a compelling argument for diversifying investments away from the U.S. stock market.
On February 10, news outlets reported insights from Altmann during an interview where he painted a rather somber picture of the American stock valuations, likening them to a tall mountain that appears impressive at first glance but conceals significant risks beneath the surface. In light of this, he urged investors to adopt a tactical approach by shorting the so-called 'American exceptionalism.' This term does not merely imply a pessimistic view of the markets but challenges the long-held belief that the U.S. stock market is immune to downturns and will perpetually rise. Altmann underscored that the narrative of an ever-bullish U.S. market is losing traction as prominent stocks become overvalued. Historically, such peaks in valuations often lead to diminished upside potential and, once market sentiment shifts, dramatic declines can follow.
For the past two months, Altmann has expressed optimism for European equity markets, framing European investments as akin to a 'winter lease' strategy. Despite ongoing trade conflicts between the U.S. and Europe, which act as a dark cloud looming over European stocks, the region has demonstrated remarkable resilience. The robust earnings from European companies serve as a bedrock of confidence, propelling key indices to hover around historical highs. This resilience speaks volumes about the underlying strength of the European market in the face of adversity.
The evidence supporting this burgeoning sentiment is compelling. In dollar terms, the Stoxx 600 index has outperformed the S&P 500 index remarkably this year, marking its best start on record. Much of this achievement can be attributed to a recent slump in several American tech giants, which have long dominated the market landscape. Over the past several years, these 'Big Tech' firms have acted as the engine driving the U.S. indices far ahead of European counterparts. However, the winds of change appear to have shifted towards Europe, with investor sentiment gradually favoring stocks perceived as offering better value.
From a macro perspective, the political climate in the UK and France has stabilized, laying a strong foundation for economic growth and market performance. Policymakers at the European Central Bank and the Bank of England have adopted increasingly dovish monetary policies compared to their American counterparts, instilling a sense of certainty and stability among market participants. Furthermore, tariffs imposed by the U.S. are being interpreted more as negotiating tools than significant threats, which may lessen their potential negative impact on European markets.
Simultaneously, the once unassailable 'Big Tech' stocks have shown lackluster performance since the beginning of 2025, leading many to question America's dominance in the realm of AI technology. This shift in market sentiment appears to be eroding the allure of American tech stocks. Notably, a recent survey by American Bank revealed a marked change in investor allocation towards European equities, with a jump from 22% underweight to an impressive 1% overweight, establishing the second-largest increase in exposure to European equities in 25 years. This clear pivot illustrates a growing appetite for European stocks among investors.
The perspectives presented by the strategists at American Bank align closely with Altmann's observations. They noted the dwindling influence of American tech stocks as many non-U.S. markets outperform the S&P 500 index this year. Altmann warned, “Strategies that previously yielded strong returns may struggle to replicate their success this year. Investors should seek opportunities beyond U.S. equities and AI trading.” Additionally, he pointed out that elevated long positions held by hedge funds render American stocks vulnerable; any considerable shift in market dynamics could lead to significant downturns for U.S. stocks.
Despite Altmann's bullish stance on European stocks, he maintains a cautious approach for investors. He cautioned that stock volatility in Europe may increase later this month, although he views this potential turbulence as an opportunity for savvy investors. For those with experience, market fluctuations often present a mix of opportunity and risk; with judicious timing, substantial profits can be reaped from volatility.
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