The one-year anniversary of "Liberation Day" rings alarm bells! Amid the collapse of the "American Exceptionalism" narrative, funds are shifting their focus outside the U.S. market.

A year ago—specifically on April 2, 2025, local time in the United States—U.S. President Donald Trump appeared on the White House Rose Garden to announce one of the most iconic policies of his second term. The American president unveiled a long list of tariff schedules categorized by country and dubbed it his “Liberation Day” global tariff and trade policy—an initiative that at the time triggered intense sell-off panic and volatility across global financial markets. Among the much-watched tariff list were high tariffs on imports from many trade partners, including a 34% tariff on goods from China, a 20% tariff on the European Union, and a 46% tariff on Vietnam.

The subsequent record-level market sell-off swept across all kinds of assets worldwide—including major pressure on U.S. stocks, U.S. Treasuries, and the U.S. dollar—which later evolved into the so-called end of “U.S. market exceptionalism” rhetoric and the trading theme of “Sell America.”

Over the 12 months since “Liberation Day,” U.S. assets have also experienced more severe volatility closely tied to a mix of policies under Trump that are difficult to predict—giving rise to various trading strategies ranging from ABUSA (Anywhere But the USA, i.e., “anywhere but the U.S.”) to TACO (Trump Always Chickens Out, i.e., “Trump always backs down at the last minute”).

The currently still extremely hot “TACO” trading strategy was born during the period when, in April 2025, Trump launched an unprecedented “reciprocal tariffs” campaign against the world. The “TACO” strategy is now widely adopted by traders and remains the hottest trading strategy today. Whenever Trump issues new, more aggressive tariff threats or throws out other major threats that trigger a market plunge, investors bet that he will ultimately back down or that the policies that actually get implemented will be far weaker than his verbal threats. They then choose to aggressively bottom-fish at the appropriate lull, placing heavy bets that the stock market will rebound sharply in the near future.

In the months since “Liberation Day,” some international markets— including benchmark equity indices in Brazil, the UK, and Japan—have delivered performance significantly better than the S&P 500 Index. This is thanks to investors—especially investors outside the U.S.—who are urgently seeking diversified allocations in order to escape overdependence on investment returns from the U.S. market.

Soon after, Washington reached a series of trade agreements, reducing the tariff rates imposed on several key trading partners, such as the European Union, the UK, India, and Switzerland.

But in February of this year, the underlying logic of this tariff framework was overturned, because the U.S. Supreme Court ruled it unlawful. Subsequently, a judge ordered the Trump administration to prepare to pay back billions of dollars to importers that had already paid these tariffs, but how to do so in practice and the legal rules at the level of implementation have not yet been announced.

Last month, Trump launched Section 301 investigations into more than a dozen trade partners, including China, the European Union, Japan, Switzerland, and India—clearing the way for the White House to impose further import tariffs on these economies. Previously, he had imposed a 10% “universal” tariff on imported goods, and the U.S. government recently said that rate will soon be raised to 15%.

Official start of the end of “U.S. exceptionalism” rhetoric in 2025?

AJ Bell investment director Russ Mould said in a report on Monday that investors are still continuing to reassess their exposure to the U.S. He said: “Tariff policy and tough trade measures, challenges to the independence of the Federal Reserve’s monetary policy, and now military actions in Latin America and the Middle East, along with threats of force around Greenland, are—together with elevated valuations in U.S. equities and a soaring federal deficit—prompting investors to revisit the narrative of ‘U.S. exceptionalism.’”

Mould added that the so-called “reciprocal tariffs” announced by Trump last April “took trade policy to a whole new level.” While he noted that both the stock and bond markets have not welcomed the policy, Mould also said that when Trump rolled back parts of the tariff policy, the market rebounded quickly.

Mould said: “However, it seems investors are indeed taking seriously where to allocate capital in the world after ‘Liberation Day’—and it’s a world in which a president’s social media post carries substantial weight across politics, economics, and the military.”

“U.S. equities may have rebounded strongly from the lows of ‘Liberation Day,’ but it is no longer the preferred destination for some international investment institutions—and since the end of the 2009 global financial crisis, the U.S. has been the concentration point for global capital for most of the time. In other words, the situation is no longer ‘U.S. first, and nothing else.’”

According to AJ Bell’s analysis, since “Liberation Day,” investment returns in China’s A-shares (the Shanghai Composite Index), South Korea’s Kospi Index, and Japan’s Nikkei 225 Index have all been higher than the three main indices on Wall Street, while emerging market benchmark indices have been “leading the charge.”

Last year, AJ Bell’s statistics pointed to a trend: as the appeal of global funds excluding the U.S. rises, some investors, when looking for new investment funds, are “intentionally excluding the U.S.”

London-based Evelyn Partners’ Daniel Casali, a partner in investment strategy, said on Thursday that in GBP terms, since “Liberation Day” on April 2 last year, the MSCI U.S. Index has risen 14%—underperforming the MSCI All Countries Index, which rose 18%.

He said: “This relatively weak performance of the U.S. stock market may reflect the impact of President Donald Trump’s ‘U.S. first’ policies. Those policies have prompted Europe to increase defense and infrastructure spending as part of broader fiscal stimulus. The market also expects the growth premium of the U.S. relative to Europe to narrow, which supports valuations in Europe’s markets—especially compared with the U.S. market, which is particularly expensive in terms of valuation—particularly in the backdrop of the White House’s policy decisions becoming increasingly erratic.”

Ron Temple, a senior market strategist at international asset manager Lazard, said that 2025 has already marked the official start of the end of “U.S. market exceptionalism.” Temple said that as global investors reassess U.S. assets, a sustained and long-lasting weakening of the dollar and a steepening yield curve driven by ongoing selling pressure on U.S. Treasuries from international capital are among the most likely milestone events.

Temple’s outlook on the future of investment strategy often sparks heated discussion in financial markets. He previously accurately predicted the timing of the end of negative interest rates with the Bank of Japan’s rate hikes in 2024, and in 2025 he successfully anticipated emerging market equities significantly outperforming both U.S. equities and developed market equities.

Temple recently warned in a media interview that investors should consider materially reducing their allocation size/actual exposure to U.S. stock assets and instead increase their exposure to stock markets that have previously fallen more sharply—for example, Japan’s equity market and some equity assets in emerging markets with strong economic resilience.

Temple expects that as fiscal pressures continue to rise, the yield curve will become steeper. These pressures include higher defense spending in the U.S. and in more NATO member countries, potentially escalating defense and military-industrial spending in the Middle East, and the ongoing presence of America’s high fiscal deficits and increasingly massive interest expenses. “In my personal expectation, the U.S. fiscal deficit over the next decade will be 6.5% to 8% of GDP every year,” he emphasized, adding that this will ultimately become a long-term negative catalyst for the stock market.

Over the past decade or more, “U.S. exceptionalism” swept the globe, and investors in U.S. markets enjoyed long-lasting access to the best global returns. But since 2025, “U.S. exceptionalism” has shown major cracks. A series of aggressive outward-facing tariff trade policies that the Trump administration has launched or is planning to push, along with frequent geopolitical conflicts triggered by them, have made more and more investors worry about the risk of the U.S. economy falling into “stagflation” or even “a deep recession”—which is also the core logic behind the continued weakness of U.S. Treasury assets since 2025.

The U.S. market is no longer the only answer! After the one-year anniversary of “Liberation Day,” global investors revalue where capital should go

However, Casali of Evelyn Partners added that while underweighting U.S. stocks has been beneficial over the past year, it does not necessarily mean that the U.S. will perform poorly in investment returns over the long term.

He said: “For a long time, the U.S. economy has had a history of strong and steady expansion with faster growth than other major developed economies. This gives domestic companies more room for revenue expansion,” and he added that the U.S. still remains a global leader in innovation.

He said: “In the end, the key to investing is diversification—maintaining balanced exposure between U.S. stocks and other global markets.”

Nigel Green, CEO of deVere Group, said on Thursday that after the past year since “Liberation Day,” the S&P 500 Index “has still delivered relatively strong performance,” but the composition of where money flows has changed.

Although he noted that capital has not fully left the U.S., Green added that “the direction of new inflows matters,” pointing to a clear increase in capital allocation to parts of India, Japan, and Southeast Asia.

Green also emphasized that institutional investors’ capital flows reflect their desire to hedge against concentration risk from U.S. policies. He said: “Investors no longer view the U.S. as a homogenous opportunity. They are selecting those sectors that align with policy tailwinds while avoiding areas exposed to trade disruption.”

“Liberation Day accelerated market differentiation. On one side are companies that align with domestic production, AI infrastructure, and energy security, which are attracting inflows of capital; on the other side are U.S. companies with high global market business exposure and complex supply chains, which are facing a higher level of scrutiny—and in some cases, valuation compression.”

Green added that “U.S. exceptionalism still exists in some institutional strategies, but it is no longer automatically true.” He said: “Asset allocators are conducting more rigorous comparative analysis. They are assessing regional governance, policy clarity, and currency risk. The U.S. is still at the core, but now it has to work harder to compete for capital.”

Schroders’ multi-asset income head Dorian Carrell, meanwhile, emphasized that more recent new developments—uncertainty surrounding the Iran war, pressure in private credit, and high levels of AI capital expenditure—are additional drivers prompting international investors to rethink allocations.

He said: “After the past year since ‘Liberation Day,’ that previously synchronized, policy-driven environment is giving way to one shaped more by domestic priorities, geopolitical frictions, and harder-to-predict policy coordination.”

Carrell said that “some data indicate that the opportunity set seems to tilt toward sectors and regions outside the U.S. market,” and that from a pure valuation perspective, Europe and Japan stand out particularly. He said: “Looking ahead, concerns about private credit, overconcentration of market capitalization in tech giants, rapidly evolving business models, and the steepening of the yield curve all indicate that a moderately diversified allocation away from the U.S. market is a reasonable investment strategy. Although the U.S. still offers very attractive opportunities, we believe that many other regions have already priced in more uncertainty—especially policy uncertainty, which is much smaller.”