Global Markets Surge
Rooted in a unique historical journey, American exceptionalism reflects the belief that the United States holds a singular and unmatched position on the global stage. Amidst the turbulence of global trade and a storm of uncertainty, a surprising development emerged: global stocks delivered an unexpected victory. In April, the ten best-performing country indexes were all outside the U.S., each achieving returns exceeding 5%. (Table 1)
It’s no surprise that the U.S. and China had the worst-performing stock markets in April, given they’ve been hit hardest by the ongoing trade war.
U.S. stocks have returned -5.1% year-to-date while non-U.S. stocks, including emerging markets, have returned 9.0% in U.S. dollar terms. The weakening dollar added about 6.5% to non-U.S. stock returns. In other words, in local currency terms, non-U.S. stocks returned 2.6% year-to-date.
Table 1
Monthly Net Returns for the Period Ending April 30, 2025: (MSCI data)
Germany
+ 7.52%
Latin America
(Emerging Market)
+ 6.91%%
Australia
+ 6.77%
Japan
+ 5.23%
Understanding Why
U.S. Stocks are Underpeforming
This disparity in performance between U.S. and non-U.S. stocks can be attributed to several key factors.
- A key factor is the fluctuation in currency values, particularly the decline of the U.S. dollar. A weaker dollar increases the returns of non-U.S. stocks when converted to U.S. dollars, adding approximately 6.5% to their performance.
- Different economic conditions and monetary policies across regions have also created varied market dynamics. For example, emerging markets might experience stronger growth opportunities or more favorable trade conditions compared to the U.S., which is dealing with challenges like the ongoing trade war.
- Finally, technical trading signals, such as U.S. stocks falling below their 10-month moving average, can intensify selling pressure and heighten short-term market volatility, further impacting performance differences.
The U.S. is feeling the heat of the trade war more than China, or at least that’s what the markets are signaling. While China’s stock market has still managed to climb 10% this year (even after a 5% dip in April), U.S. stocks are struggling. Small-cap stocks, in particular, are in meltdown mode with a brutal -10% return so far this year.
Why the steep drop for small caps? These companies just don’t have the wiggle room that big corporations do. They can’t easily shift production or suppliers away from China, and many are stuck with inventory in transit that’s now slapped with 145% tariffs. For some, these tariffs are a business killer, forcing price hikes just to stay afloat.
investment strategy
Portfolio Positioning
Given U.S. economic headwinds and above-average stock market valuations, a continued underweight to U.S. large-cap stocks is warranted, and reflected accross the board in our ETF Strategies. Fortis broad asset allocation is:
Global Stocks
Global Bonds
Real Assets
Stocks
We do not believe that further reducing stock allocations is necessary at this time. As trade wars are fundamentally political in nature, a swift resolution could prompt a significant shift away from non-U.S. stocks. Although we have invested in the growth of non-U.S. markets, particularly in Europe and Emerging Markets, our primary focus remains on targeted opportunities within U.S. markets. These include value stocks, high-dividend-yield companies, mid-cap firms, and stocks with strong positive momentum.
Bonds
Our bond allocation strategy continues to emphasize corporate bonds. To complement our portfolio, we are focusing on short-term bonds and Treasury Inflation-Protected Securities (TIPS) to round out our allocation to government bonds.
Given current economic challenges and below-average credit spreads, we remain cautious about increasing exposure to non-investment-grade bonds. Similarly, U.S. longer-term bonds present above-average risk, with rising yields defying the typical pattern seen in periods of slowing economic growth.
Real Assets
Real assets continue to anchor the portfolio effectively, with solid contributions from real estate and commodity allocations. Year-to-date, real estate investments have delivered steady performance, supported by resilient demand across key markets and sectors. Despite broader economic headwinds, specific segments like industrial and multifamily properties have shown exceptional returns.
Gold, acting as a dependable hedge, has provided strong positive returns amid ongoing inflation concerns and heightened market volatility. Similarly, the broader commodity markets have recorded impressive gains, fueled by supply constraints and robust demand for critical resources such as energy and agricultural products.
These results underscore the critical role of diversification in our real assets strategy, reinforcing their value in delivering stability and resilience in a dynamic market environment
NEXT STeps
The Morning After
The morning after is defined as, "The unpleasant results of an earlier activity, especially overindulgence in alcohol."
This expression originated in the late 1800s as a synonym for a hangover (and was often put as the morning after the night before). For example, A headache is just one of the symptoms of the morning after.
Dictionary.com
Our hangvoer lies in the profound impact the ongoing trade war could have on global markets, as outcomes remain heavily dependent on the trajectory of tariff negotiations. Capital Economics predicts that if tariffs on China rise to 60%, existing tariffs remain unchanged, and additional tariffs are indefinitely delayed, the U.S. effective tariff rate could surge to 16%—a sharp jump from just 2% last year.
While Congress could alleviate some of the headache pressure by implementing tax cuts to reinvest tariff revenues into the economy, those funds might instead be allocated to reducing the federal budget deficit. If that’s the case, the risk of a recession could rise substantially. Consequently, we’re holding off on rushing to “buy the dip” in undervalued market sectors for now. At Fortis, we’re staying cautious—and keeping the aspirin close.
We will continue to keep you informed about our insights and actions in the market. If you have any questions, please don’t hesitate to reach out.
Sincerely,
Meridith L. Hutchens