US stocks fell last week, while stocks in Europe, the UK, Japan, and China all rose.<\/p>\n\n\n\n
There has been more monetary policy support in Europe and the UK than in the US so far this year, and likely more to come.<\/p>\n\n\n\n
Fiscal stimulus will likely be increasing in the eurozone, the UK, and China, while the US aggressively cuts federal spending.<\/p>\n\n\n\n
Last week saw US stocks fall while stocks in other regions rose \u2014 some quite significantly. While the MSCI USA Index fell 1.4%, the MSCI Europe Index, the MSCI UK Index, the MSCI Japan Index, and the MSCI China Index all posted material gains.1<\/a><\/sup> Why are US stocks behaving so differently than other stocks in other regions when European Central Bank (ECB) President Christine Lagarde admitted just last week that \u201cthe economic outlook is clouded by exceptional uncertainty\u201d?2<\/a><\/sup> Here are a few thoughts:<\/p>\n\n\n\n There\u2019s more monetary policy support being provided to the European economy \u2014 as evidenced by the ECB\u2019s rate cut last week \u2014 than the US economy so far this year, and that\u2019s likely to continue. This was the ECB\u2019s seventh cut in the course of its last eight meetings, and it seems ready to lower rates again if necessary. We also got a rate cut from the Bank of England in February, and we could see more this year. Conversely, the Federal Reserve<\/a> (Fed) hasn\u2019t cut rates thus far in 2025 and appears more comfortable waiting to see the impact of tariffs<\/a> on the US economy before easing monetary policy. As Fed Chair Jay Powell explained last week, \u201cAs that great Chicagoan Ferris Bueller once noted, \u2018Life moves pretty fast.\u2019 For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.\u201d3<\/a><\/sup><\/p>\n\n\n\n Fiscal stimulus is expected to increase in the eurozone and even the UK, with increased defense spending becoming a priority, as well as in China, as policymakers focus on increasing domestic consumption and combating headwinds created by US tariffs. Chinese economic growth was strong \u2014 better than expected \u2014 but it\u2019ll take significant stimulus to counter the headwinds of high tariffs. Conversely, the US is still aggressively cutting federal spending, which is certainly not stimulative. And any potential tax cuts may not be an adequate countervailing force to this substantial drop in government spending.<\/p>\n\n\n\n Valuations have been much higher for US stocks than for stocks of other regions. For example, the MSCI USA Index recently had a trailing price-to-earnings (P\/E) ratio of 25.11 and a forward P\/E ratio of 20.53.4<\/a><\/sup> Compare that to other major indexes:4<\/a><\/sup><\/p>\n\n\n\n Some investors may be able to ignore, or at least tolerate, high valuations for long periods of time. However, in periods of significant uncertainty, valuations can matter more. In this environment of \u201cexceptional\u201d uncertainty, investors may be even more unforgiving when it comes to high valuations.<\/p>\n\n\n\n Policy uncertainty can have a chilling effect on business investment and hiring plans. We saw that during the tariff wars in the first Trump administration. This time around, the tariff levies are broader and deeper, and the uncertainty is much greater. For example, last week Goldman Sachs\u2019 CEO shared, \u201cThe prospect of a recession<\/a> has increased with growing indications that economic activity is slowing down around the world. Our clients, including corporate CEOs and institutional investors, are concerned by the significant near-term and longer-term uncertainty that has constrained their ability to make important decisions.\u201d5<\/a><\/sup> And US policy uncertainty is increasing by the day, with recent fears arising that President Donald Trump will fire Fed Chair Jay Powell, which could be very negative for markets. In short, this level of policy uncertainty can be very destabilizing and runs counter to the US government\u2019s historical role as a stabilizing force for the economy and markets.<\/p>\n\n\n\n The epicenter of the tariff wars is likely to be the US consumer, and that\u2019s going to be problematic for an economy that\u2019s so heavily dependent on consumer spending. That\u2019s particularly so if we see a material increase in unemployment, which could result from current fiscal policy. We saw a \u201cpull through\u201d of US spending in March, with better-than-expected retail sales, but that may only add to headwinds facing retail sales going forward.<\/p>\n\n\n\n Looking ahead, there\u2019s likely to be more volatility and uncertainty, especially in the US. It\u2019s important for investors to focus on their investing time horizon, which is typically far longer than an average recession or a presidential term. It\u2019s also important to remember key concepts such as maintaining one\u2019s investment policy, remaining well diversified, rebalancing regularly, and even looking for opportunities to take advantage of the uncertainty and volatility.<\/p>\n\n\n\n Past performance is not indicative of future results<\/p>\n\n\n\n —<\/p>\n\n\n\n Originally Posted on April 22, 2025<\/p>\n\n\n\n1. Monetary policy support<\/strong><\/h2>\n\n\n\n
2. Fiscal policy support<\/strong><\/h2>\n\n\n\n
3. Valuations<\/strong><\/h2>\n\n\n\n
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4. US policy uncertainty<\/strong><\/h2>\n\n\n\n
5. US consumers<\/strong><\/h2>\n\n\n\n
Looking ahead<\/strong><\/h2>\n\n\n\n
Dates to watch<\/h4>\n\n\n\n
Date<\/strong><\/th> Report<\/strong><\/th> What it tells us<\/strong><\/th><\/tr> April 21<\/td> US Leading Economic Indicators Index <\/td> Provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term. <\/td><\/tr> April 22 <\/td> Eurozone Consumer Confidence <\/td> Tracks sentiment among eurozone consumers. <\/td><\/tr> <\/td> Japan Manufacturing Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> Japan Services Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> Australia Manufacturing Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> Australia Services Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the services sector. <\/td><\/tr> April 23 <\/td> Eurozone Manufacturing Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> Eurozone Services Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> UK Manufacturing Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the manufacturing sector. <\/td><\/tr> <\/td> UK Services Purchasing Managers\u2019 Index (PMI) <\/td> Indicates the economic health of the services sector. <\/td><\/tr> <\/td> Federal Reserve Beige Book <\/td> Gathers anecdotal information on current economic conditions in Federal Reserve districts. <\/td><\/tr> April 24<\/td> US Durable Goods Orders <\/td> Measures current industrial activity. <\/td><\/tr> <\/td> US Existing Home Sales <\/td> Indicates the health of the housing market. <\/td><\/tr> <\/td> UK GfK Consumer Confidence <\/td> Measures the level of consumer confidence in economic activity in the UK. <\/td><\/tr> <\/td> Japan Consumer Price Index (CPI) <\/td> Tracks the path of inflation. <\/td><\/tr> April 25<\/td> UK retail sales <\/td> Indicates the health of the retail sector. <\/td><\/tr> <\/td> Canada retail sales <\/td> Indicates the health of the retail sector. <\/td><\/tr> <\/td> University of Michigan Survey of Consumers <\/td> Provides indexes of consumer sentiment and inflation expectations. <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n