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Market Analysis

American exceptionalism is back as foreign inflows pour into US markets

Just when it looked like the narrative of US dominance was starting to fray - cue April’s market wobble, Trump’s tariff tantrums, and a dollar in decline - global investors pulled a sharp U-turn. In June alone, foreign buyers poured a record $51.1 billion into US stocks and bonds, reversing a rare retreat the month before. It’s the kind of comeback that has Wall Street veterans buzzing and doomsayers scrambling. The S&P 500 is once again eyeing fresh highs, and talk of “American exceptionalism” isn’t just back - it’s booming. Whether it’s faith in the strength of US institutions, a bet on consumer resilience, or simply a global flight to safety, one thing’s clear: the world is still betting big on brand America. But with tariffs looming, yields rising, and other markets gaining ground, the question is: Can the US keep the magic alive? A record rebound in foreign capital inflows April was messy. The S&P 500 flirted with bear market territory, the Nasdaq fell through it, and Treasury yields went on a rollercoaster as investors braced for a wave of uncertainty. Trump’s surprise return to tariff hikes - dubbed “Liberation Day” by traders - sparked fears of capital flight, currency instability, and a potential unraveling of US market supremacy. And then, just weeks later, came the whiplash: $311 billion in net foreign inflows in May, the highest monthly total ever recorded. That followed a modest $14.2 billion outflow in April, making the turnaround even more dramatic. The numbers don’t lie. For the 12 months through May, net foreign inflows are fast approaching the record $1.4 trillion peak seen in July 2023 - right when “American exceptionalism” last dominated headlines.

Source: LSEG & Yadeni Research, US Treasury Why investors are flocking back to the US markets in 2025 Let’s break it down. What’s pulling all this foreign cash into US markets? - Tariff shock therapy: The worst of Trump’s tariff threats are, for now, on hold. That pause has given markets time to breathe - and time for investors to snap up assets before things potentially escalate again. - US consumer strength: Americans, somehow, are still spending. That’s propping up corporate earnings and fuelling optimism that the domestic economy can stay afloat even as global growth falters. - The dollar and safe-haven appeal: Despite its recent slump, the dollar remains the world’s default safety blanket. With the World Bank forecasting just 2.3% global growth this year, investors are playing it safe - and US assets fit the bill. - No real alternative: Europe’s in a slowdown. China’s recovery is patchy. When push comes to shove, the US still offers the deepest, most liquid financial markets on the planet. As Robin Brooks of the Brookings Institution put it: “Markets are far more accepting of all the ups and downs than people realise. US exceptionalism is alive and well.” The Dollar's safe-haven status has been under threat Of course, not all that glitters is gold. The dollar just clocked its worst first half in over 50 years.

Source: TradingView At the same time, the S&P 500 and Nasdaq have retaken prior highs, indexes in Europe and China have outperformed in recent months. There’s also the very real risk that ongoing trade negotiations could fall apart, triggering even higher tariffs down the line. Then there’s the long-term picture. Critics like Ken Griffin argue the US is “tarnishing its brand” with erratic policy moves, while Deutsche Bank warns that the US’s structural edge - particularly the ability to finance cheaply through dollar dominance - is beginning to erode. Economist Jim Reid stated that they maintain a long-term negative outlook on the US dollar and anticipate a continued rise in US term premia. Translation? Borrowing could get more expensive, and investors may not always be so forgiving. The market’s mood right now The mood right now is marked by relief and a renewed sense of confidence. While bond yields remain high, they’ve levelled off, and stocks are on the rise once more. Crucially, any notion that global investors might turn their backs on the US has been firmly set aside, at least for now. Market veteran Ed Yardeni noted with a touch of irony that the latest Treasury data reaffirmed investors’ continued faith in the support of foreign buyers. It’s a cheeky way of saying what many in the markets are thinking: when the chips are down, the world still chooses the US. US markets 2025 outlook: Will the S&P 500 hit a new record? That’s the trillion-dollar question. The ingredients are certainly in place: - Record-breaking foreign inflows - Easing tariff anxiety - Earnings holding up - A global economy still searching for footing But the headwinds are real - high interest rates, policy unpredictability, and a crowded geopolitical calendar. If global investors get spooked again, this resurgence could quickly stall. Still, for now, the stars seem to be aligning. The US is back in favour, the S&P 500 is climbing, and the narrative of American exceptionalism - once declared dead - is suddenly alive, well, and buying stocks. At the time of writing, the S&P 500 price has retreated considerably even as significant capital inflows pour in. Volume bars show dominant buy pressure, with sellers offering some resistance, albeit without much conviction - hinting at a potential price reversal if sellers don’t offer much resistance. If we see an uptick, bulls could challenge the $6,435 price level, where the price has been rebuffed before. Conversely, should we see more downside, prices could find resistance at the $6,215 and $5,928 support levels.

Source: Deriv MT5