empty
19.05.2025 09:18 AM
The Market Has Gone Too Far

Nothing seems to matter. One would think that after the White House signed trade agreements with Britain and China, and following Donald Trump's visit to the Middle East, the S&P 500 would be losing momentum. Especially given the disappointing macroeconomic data out of the U.S., the unwillingness of the EU, Japan, and South Korea to make compromises, and the downgrade of the U.S. credit rating, all factors should have pushed the broad stock index lower. However, when a frenzied crowd takes charge, there is no guarantee the laws of economics will hold.

Moody's has become the last of the three major agencies to strip the U.S. of its highest rating. In theory, this should accelerate the sell-off of U.S. bonds, increase their yields, and push stock prices lower. By the way, stocks already look expensive by various price-to-earnings (P/E) metrics. Indeed, while the U.S. market trades at 23 times forward earnings, in the rest of the world it's just 14 times.

S&P 500 P/E Ratio Trends

This image is no longer relevant

The more than 20% rally in the S&P 500, fueled by investor enthusiasm, is certainly noteworthy. However, since the start of the year, the broad stock index has only gained a meager 1.3%. For comparison, the EuroStoxx 600 is up 8%, and Germany's DAX 40 is up 19%. In U.S. dollar terms, the European indexes have gained 17% and 28% respectively. No wonder capital continues to flow from North America to Europe.

At the heart of this is the loss of American exceptionalism. The only question is whether this is a temporary retreat due to excessive bets on U.S. equities in past years or the beginning of America's long and painful decline relative to the rest of the world.

Global vs. U.S. Stock Market Performance

This image is no longer relevant

In 2024, U.S.-listed stocks accounted for two-thirds of the global MSCI equity index. The 10 most valuable companies in the world were all American. Over the past five years, the U.S. economy has vastly outperformed its rivals, and the USD index has reached heights not seen since the Plaza Accord of 1985. America held undisputed leadership in innovation, productivity, and finance. In other words, exceptionalism had gone too far.

This image is no longer relevant

Donald Trump's return to the White House jolted investors awake. The growing unpredictability of U.S. policy demands diversification in investment portfolios. The U.S. is no longer a safe haven for capital. Returns are lower than in Europe, and the risks are no less significant. This leads to the conclusion that the U.S. stock market may continue to underperform, no matter how much the crowd inflates the bubble. Isn't it time for it to burst?

Technical Outlook

Technically, the daily chart of the S&P 500 shows the continuation of a rally. Long positions initiated from the 5900 level still make sense to hold. However, a drop below this level or a rebound from resistance zones at 5980 and 6040 would signal to start selling the broad stock index.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/CHF. Analysis and Forecast

Today, the USD/CHF pair retraced part of its decline from a new weekly low recorded during the Asian session and has temporarily paused its downward movement, stopping short

Irina Yanina 12:26 2025-07-10 UTC+2

Market dupes sellers

The split within the Federal Reserve, NVIDIA's successes, and a successful auction of 10-year US Treasury bonds allowed the S&P 500 to ignore the tariff chaos. Donald Trump announced tariffs

Marek Petkovich 12:02 2025-07-10 UTC+2

What to Watch on July 10th: Fundamental Event Overview for Beginners

Macroeconomic Report Analysis: There are very few macroeconomic publications scheduled for Thursday, and none of them are expected to be significant. So what could traders focus on today? The second

Paolo Greco 09:07 2025-07-10 UTC+2

GBP/USD Overview on July 10, 2025

On Wednesday, the GBP/USD currency pair maintained its downward movement, which is corrective in nature and could end at any moment. The price remained below the moving average line

Paolo Greco 07:26 2025-07-10 UTC+2

EUR/USD Overview on July 10, 2025

The EUR/USD currency pair continued to trade very calmly on Wednesday. The pair maintained a slight downward bias, as we've noted in all of our recent articles. However, the current

Paolo Greco 07:16 2025-07-10 UTC+2

USD/CAD. Analysis and Forecast

Today, the USD/CAD pair is showing signs of recovery, rising toward the 1.3700 level and approaching the weekly high reached earlier. Fundamental factors point to bullish dominance and the potential

Irina Yanina 12:46 2025-07-09 UTC+2

Markets unfazed by Trump's new tariff threats

Donald Trump's bark is louder than his bite. Markets have grown so accustomed to his rhetoric that the S&P 500 barely flinched at the White House's latest threat to slap

Marek Petkovich 11:53 2025-07-09 UTC+2

AUD/USD. Analysis and Forecast

The AUD/USD pair is holding steady at current levels with a bullish bias but limited movement following the release of inflation data from China—Australia's key trading partner. In June

Irina Yanina 11:35 2025-07-09 UTC+2

USD/JPY. Analysis and Forecast

On Wednesday, the Japanese yen extended its decline for the third consecutive day, pushing the USD/JPY pair to a new two-week high above the key 147.00 level during the Asian

Irina Yanina 11:23 2025-07-09 UTC+2

Consumer lending in the US is slowing down

According to data, consumer lending in the U.S. grew at its slowest pace in three months in May amid a decline in outstanding balances on credit cards and other revolving

Jakub Novak 10:43 2025-07-09 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.