Donald Trump’s ‘America First’ Is Driving Wall Street Anywhere But America

Key Takeaways

• Trump’s “America First” policies and market volatility are driving investors toward international stocks.
• European markets have experienced their strongest start since 1998, fueled by defense spending.
• Attractive valuations, AI innovation, and government stimulus have sparked a surge in Chinese stocks.

U.S. President Donald Trump’s “America First” policies are having an unintended effect, they are making global markets more attractive to investors.

Amid rising volatility in U.S. markets, major financial institutions are questioning American economic dominance, leading to a significant shift in global investment trends.

Trump’s Policies Boost Global Equities

International stocks are outperforming in ways not seen in years.

The iShares MSCI Emerging Markets ETF (EEM) and iShares MSCI EAFE ETF (EFA) have surged more than 7% and 11% in 2025, respectively, while all three major U.S. indexes remain in the red.

The Nasdaq Composite is in correction territory, the S&P 500 briefly dipped into one, and the small-cap Russell 2000 is approaching a bear market.

Much of this shift stems from ongoing U.S. market volatility, exacerbated by Trump’s inconsistent tariff policies.

Investor confidence has been shaken, leading many to seek higher returns in foreign markets.

Jeremy Folsom, an investment strategy analyst at Wells Fargo Investment Institute, stressed the importance of diversification .

“Given the current landscape, investors should maintain exposure to both developed and emerging market equities,” he said, citing favorable valuations and growth potential.

Major financial institutions are adjusting their outlooks accordingly.

Citigroup downgraded U.S. stocks to “neutral,” warning of a “pause in U.S. exceptionalism.”

HSBC and BCA Research have also revised their forecasts downward, while Bank of America cautioned that U.S. dominance may be waning due to fading fiscal stimulus and economic headwinds.

Wall Street Eyes European Equities

While Trump’s policies are rattling Wall Street, they appear to be fueling a rally overseas.

His administration has successfully pressured European nations to increase military spending—a key foreign policy goal that is now boosting economic activity across the region.

European markets are off to their best start since 1998.

The STOXX Europe 600 has climbed 7.7%, Germany’s DAX has surged over 15%, and France’s CAC 40 is up nearly 9%. The UK’s FTSE 100 has gained 5.6%.

However, underlying economic challenges persist.

The UK faces stagnant growth and rising borrowing costs, France’s central bank projects weak GDP expansion and Germany’s economy has contracted for two consecutive years due to high interest rates, energy costs, and slowing global demand.

JPMorgan analysts have warned that European economic activity remains flat, and potential U.S. tariffs could further strain growth.

China’s Stock Market Heats Up

China is also emerging as a top destination for investors. Driven by attractive valuations, a booming AI sector, and government stimulus, Chinese stocks are experiencing a resurgence.

The iShares MSCI China ETF (MCHI) has jumped 21% this year, while the iShares China Large-Cap ETF (FXI) has surged over 22%.

Beijing’s 7.2% increase in defense spending and aggressive economic stimulus measures have fueled further optimism.

A key driver of this rally is China’s AI sector. The rise of local AI startup DeepSeek and investor-friendly policies have led to a 29% gain in China’s tech sector.

The Hang Seng Index has climbed 20%, trading at just seven times projected earnings—making Chinese stocks increasingly appealing compared to the S&P 500.

Despite past regulatory crackdowns, confidence in China’s markets is improving. Hong Kong’s HK$1 billion AI investment and additional stimulus measures are drawing renewed interest from global investors.

Citi recently upgraded its outlook on Chinese stocks, noting that unlike Europe’s rally, which is influenced by geopolitical factors, China’s surge is primarily driven by domestic stimulus and AI-driven growth.

Still, uncertainties remain.

Xin Sun, a professor at King’s College London, cautioned that while investors seek to diversify risk away from the U.S., economic policies from Trump’s administration continue to create ripple effects across global markets.