Investors Packing Up in the US... US Stock Allocation Sees Largest Drop Ever in March

From 17% Overweight to 23% Underweight
70% of Investors Say "U.S. Exceptionalism" Has Peaked
European Stocks Benefit Instead... Cash Holdings Also Rise Slightly

Global fund managers have reduced their investment weight in U.S. stocks by the largest margin ever recorded. The erratic tariff policies of U.S. President Donald Trump and negative economic outlooks for the U.S. have caused capital to exit the U.S. stock market. Instead, funds are moving outside the U.S., increasing investment weight in European assets, deepening the ongoing downward adjustment in the U.S. stock market.

According to the Financial Times (FT) on the 18th (local time), a recent survey conducted by Bank of America (BoA) targeting 171 fund managers (managing assets worth $477 billion) showed that investors' investment weight in U.S. stocks dropped by 40 percentage points from 17% 'Overweight' in February to 23% 'Underweight' in March.

Investor sentiment toward the U.S. stock market also worsened this month. According to BoA, the March FMS investor sentiment index fell 2.6 points from 6.4 in the previous month to 3.8, marking the lowest level in seven months. Concerns about stagflation (rising prices amid economic stagnation), the outbreak of a global trade war, and the end of U.S. exceptionalism (strength in the U.S. stock market) have frozen investor sentiment. In fact, about 70% of investors judged that the 'U.S. exceptionalism' theme, which lifted the S&P and Nasdaq indices to record highs in the weeks following President Trump's election victory, had reached its peak.

BoA's senior investment strategist Elias Gallo said, "At the beginning of this year, investors were all fervent bulls, but they are ending the winter as bears," adding, "Everyone had a bullish outlook on the U.S., but that outlook has weakened considerably."

Global fund managers filled the gap left by U.S. stocks with European stocks. Investment allocation to Eurozone (20 countries using the euro) stocks surged 27 percentage points this month, reaching the highest level since July 2021. BoA noted that this is the most rapid capital shift from the U.S. to Europe since BoA began tracking related data in 1999.

Investors participating in the survey were particularly negative on technology stocks. Accordingly, they shifted to a 12% underweight position in technology stocks. Cash levels in portfolios slightly increased to 4.1%, but bond allocations decreased somewhat. This suggests that funds exiting U.S. stocks are not flowing into bonds.

Michael Metcalf, Chief Macro Strategist at State Street, interpreted this change as "more of a rebalancing than risk aversion."