Investment Glass Half Full: Positive Outlook for Stock Market Performance Near Mid-2025

Despite global economic shifts and political uncertainties, a surprisingly optimistic outlook is emerging for stock market performance as mid-2025 approaches. This positive sentiment is fueled by a new era of "home bias" in investing and synchronized fiscal stimuli worldwide, suggesting a potential rebalancing of the global economic order.

The Shifting Landscape of Global Investment

The current investment climate is characterized by a growing "home bias," where investors prioritize domestic markets. This trend, partly influenced by U.S. President Donald Trump's economic policies, is leading to a re-evaluation of global trade and capital flows. Larry Fink, CEO of BlackRock, describes this as a "second draft of globalization," aiming for open markets that primarily benefit the citizens of the investing country.

Key Takeaways

• Home Bias in Investing: A growing trend where investors prioritize domestic markets, partly influenced by U.S. economic policies.
• "Re-Globalization" Concept: Larry Fink's idea of a new global economic framework that balances open markets with ensuring domestic prosperity.
• Synchronized Fiscal Stimuli: Anticipated strong fiscal boosts in Europe, China, and potentially the U.S. in 2026, a rare occurrence that historically follows major economic crises.
• Stock Market Resilience: Despite market volatility and concerns about a U.S. economic slowdown, global stock markets are reaching record highs.
• Underperformance of U.S. Equities: U.S. stocks are underperforming compared to equity indexes in Germany and Hong Kong, suggesting a potential shift in investment focus.
• U.S. Investor Behavior: American investors are largely keeping their money at home, with significant flows into U.S. money market funds and negative flows to global equity funds.

The Impact of "America First" Overseas

While Trump's "America First" strategy aims to re-industrialize the U.S., its underlying principles appear to be resonating globally. Countries like Germany, Europe at large, Britain, and Japan are increasingly focusing on investing in their own industrial bases, security, digital infrastructure, and green technologies. This shift is designed to leverage domestic savings and attract capital, leading to a potential synchronization of fiscal boosts across major economies in 2026. This synchronized stimulus, a rare event, could explain the current record highs in global stock markets despite ongoing trade war jitters.

U.S. Investment Trends

Despite concerns about the U.S. economic and political direction, American money is not rushing offshore. Mutual fund data indicates negative net U.S. flows to global equity funds, while cash in U.S. money market funds has climbed back above $7 trillion. This suggests a strong domestic focus among U.S. investors.

A "Kernel of Truth" in Global Reset

Experts like Emily Kilcrease and Geoffrey Gertz argue that despite the chaos, there is a "kernel of truth" in the need for a reset of the world trade system. They suggest that while a return to unfettered free trade is unlikely, outright protectionism is not inevitable. Trump's disruptive approach, though chaotic, could pave the way for a more balanced and equitable global trading framework. This optimistic perspective, viewing the current disruption as a "glass half full," is tempting investors to focus on the possibility of a new, more positive economic equilibrium.

Sources

• Investment glass seems half full near mid-point of 2025, Reuters.