Why U.S. stocks are off to the worst start since 1995*

Core Viewpoint - US stocks are experiencing their worst start to the year since 1995, while global markets are performing significantly better, with the rest of the world up approximately 8% since the beginning of the year compared to the US being flat or slightly down [1][2]. Market Performance - The US market is up 11% over the past year, while the rest of the world has seen a rise of roughly 30% [3]. - US stocks are trading at a price-to-earnings premium of about 40% over global counterparts, making them more expensive to hold while performance lags [3]. Sector Concentration - The US market is heavily weighted towards technology, which is causing investors to seek diversification in international equities that are less concentrated in this sector [4]. Geopolitical Factors - Geopolitical risks, including issues related to Greenland, Venezuela, and the Trump administration's tariff regime, are contributing to a significant performance gap between the US and global markets [5]. Investor Sentiment - Investors are beginning to consider reallocating assets abroad, particularly towards regions like Europe, which may offer more upside potential due to their recent underperformance [6][8]. Japan's Investment - Japan is emerging as a favored investment destination, with a recent announcement of a $36 billion investment in the US, primarily in the energy sector, as part of a larger $550 billion trade agreement [9][11]. - This investment includes a significant natural gas plant in Ohio, aligning with Japan's need for energy imports and reducing reliance on China [10][12]. Earnings Growth - The majority of outperformance for non-US markets in 2025 was attributed to multiple expansion rather than earnings growth, highlighting a need for fundamental improvements to sustain this trend [15][16]. - US earnings growth is significantly outpacing that of other regions, indicating that returns from outside the US are largely driven by valuation adjustments rather than earnings [16]. Sector Analysis - There are pockets of strength in sectors such as data center expansion and power in Europe, but overall performance may not be as broad as indicated by multiple expansions [17]. - High-quality companies in sectors like semiconductors and industrials are trading at multiples comparable to their US peers, challenging the narrative of Europe being undervalued [18]. Emerging Markets - Emerging markets, particularly in Asia, such as Korea and Taiwan, are showing exceptional earnings growth and total return potential, leading to a significant overweight in these regions within investment portfolios [20][21].