Europe and South Africa have turned the tables on the US stock market, outperforming them in February and year-to-date due to signs of a slowing US economy, trade policy uncertainty and a rotation out of tech stocks. Trump-related investor optimism has dissipated, leaving the US stock market in the red since he took office.
While the STOXX Europe 600 has achieved an impressive 8.82% gain, and South Africa’s JSE All Share Index is nearly 4% ahead year-to-date (despite the budget speech postponement), the S&P 500 has managed to deliver a paltry 2% increase, with the index having lost all post-inauguration gains since Trump took office.
Several key US-specific factors point to why this may be happening:
- US business growth slows: Surveys are capturing evidence of near-stagnant business conditions and declining manufacturing orders. Major retailers like Walmart have issued growth warnings, raising concerns about consumer spending.
- Trade policy uncertainty: The Trump administration’s proposed tariffs, including a 25% duty on imports such as autos, semiconductors, and pharmaceuticals, have created market uncertainty. The president confirmed tariffs on Canada and Mexico will move forward on schedule in March after a month’s reprieve, contributing to market declines.
- Tech sector rotation: Markets have been rotating out of AI and tech stocks, particularly after Chinese technology company DeepSeek rattled investors by introducing cost-effective AI models.
- Trump political premium dissipates: After initial enthusiasm following Trump’s inauguration, market sentiment has cooled as implementation realities set in.
Blowing away the budget blues
In South Africa, investors shrugged off the short-term financial market sell-off in response to the unprecedented delay in the government’s annual Budget Speech, after the DA refused to sign off a proposed VAT increase. The All Share Index fell 0.8% on the day, and the rand weakened 0.9% to R18.57 to the dollar. However, analysts interpreted the events as evidence that the GNU coalition is working and markets have since recovered the lost ground, with the All Share Index almost 4% ahead year to date and the rand trading back at R18.47 to the dollar at the time of writing.
SA equities are presenting compelling valuations, which Rezco CEO Simon Sylvester describes as “offering better value than Nenegate, at a better than Ramaphoria opportunity with lower political risk.” The mining sector has rallied on higher precious metal prices, with gold approaching a landmark $3,000, after breaking record after record.
Bottom line
Despite all the global uncertainty and Trump’s disruptive macroeconomic and geopolitical decisions, market analysts generally believe the fundamental case for global equities remains intact. However, the performance divergence between regions may persist in the near term.
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