The Great Disconnect

A lone gray seal waddled into a New Haven, Conn. neighborhood during this weekend’s ice storm, bewildered and out of place. It's an unusual sight for those of us in a city, but in many ways, it’s a perfect metaphor for the state of the global markets today where old assumptions no longer hold, and capital, like the young seal, is venturing into unexpected territory.

For years, the American markets were the only game in town. The US economy is resilient, groundbreaking mega-cap innovations, and deep liquidity make it a no-brainer. But 2025 is showing signs of a shift.

Recent inflows into European equities have surged to a two-year high, as capital moves into markets that have long traded at a discount to their American counterparts. The STOXX 600 is up more than 10% year-to-date, while the S&P 500 has lagged behind with a roughly 4% gain. This isn’t just a short-term trade. This might be the start of a fundamental rebalancing of global capital flows.

Several factors are making non-US markets attractive again as mentioned earlier this week by our founder Jonathan Paterson, including easing fiscal policies in Europe and the U.K., which are fostering a pro-growth environment, while increased political stability is lowering investor risk perceptions. Historically, European equities have traded at a significant valuation discount to US stocks, and as the growth gap narrows, so does that discount.

At the same time, the US market, while still a powerhouse, is facing growing headwinds. High valuations, a strong dollar that pressures exports, and concerns about the sustainability of economic growth have made some investors question the long-standing America-first mindset. This shift doesn’t mean the US market is in trouble, but it does suggest that the blind faith in American dominance is starting to crack.

This shift in global investment flows, comes at a time when America-first rhetoric is at its peak. With a steady stream of Trump-driven executive orders, the administration is doubling down on policies that prioritize real or perceived US interests—often at the expense of long-earned global cooperation. Whether it’s trade, energy, or finance, the underlying message is clear: the world should align with the American point of view or pay the price.

But markets don’t operate on ideology alone. As capital moves beyond US borders in search of value, investors are making a statement of their own—one that challenges the notion that economic dominance is a birthright, not a competition.

While institutional money may be flowing abroad, US retail investors remain stubbornly skeptical. Despite data showing stronger returns abroad, the average American investor continues to prefer the familiarity of domestic stocks. Part of this is psychological. Call it the “home bias,” a well-documented phenomenon. But there’s also a cultural aversion to change that runs deeper.

Many US retail investors equate growth with innovation, and in their minds, innovation is synonymous with Silicon Valley and Wall Street. While institutional investors chase efficiency and diversification, retail traders chase the next Tesla, Nvidia, or AI boom stock. They want growth. But only if it’s American growth. If the rest of the world continues catching up, that bias could be costly.

This hesitation among US investors to venture abroad is an ironic paradox as several high-profile European firms weigh US listings. The allure of loftier valuations and deeper liquidity is fueling an exodus from their home markets, despite strong market returns. From Swedish buy-now, pay-later giant Klarna Group to equipment rental firm Ashtead Group and mining giant Glencore who became the latest company to unveil potential interest in a move on Wednesday, the hunger for deeper liquidity is real and the demand for US investors, undeniable.

In many ways, the shifting landscape echoes the story of the bewildered gray seal in New Haven. The world is changing, and traditional assumptions are no longer safe harbors. Global capital is moving into unexpected territories, redefining what was once considered unshakable market wisdom. Like the seal in unfamiliar territory, so are we.

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