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1. Global investors are slowing their purchases of US assets and shifting more money to Europe.

“We’re seeing extremely strong demand for European assets, particularly from the US,” says Erik Koenig, who runs the EMEA equity sales desk at Bank of America.

“While Europe has faced challenges in the past that may have held its markets back, there’s now a growing confidence in its long-term potential.” Valuations in Europe remain depressed relative to the US. But something profound has happened, particularly after Germany removed its debt brake. Europe’s biggest economy is now committed to borrow more and invest massively in defense and infrastructure after more than a decade of austerity, igniting a new sense of optimism. At the ECB, officials have been cutting rates aggressively, in contrast to the measured approach from the Federal Reserve.

There’s also been a drastic change in allocation. European-focused equity funds have attracted $46 billion of fresh money since the start of 2025, on track for the second-largest annual inflows ever, according to BofA citing EPFR Global data. That’s a sharp contrast to last year, when there were $66 billion of outflows.

And there could be a lot further to go after investors, especially foreign ones, piled into US equities for years. UBS analysts expect €1.2 trillion ($1.4 trillion) of capital to rotate from US to European equities in the next five years.

“American exceptionalism is touching its limits,” wrote Natixis cross-asset strategists Emilie Tetard and Florent Pochon, adding that both foreign and domestic investors have loaded up on US equities in recent years. They expect a normalization in these inflows, citing a declining dollar, rising political risks, AI competition and a narrowing economic growth gap versus the rest of the developed economies.

2. The S&P 500 closed at another high.

However, Deutsche Bank said it largely reflects continued corporate buybacks instead of strong risk appetite.

US profit margins face a big test in the upcoming earnings season as investors assess the damage from the trade war, according to Goldman Sachs’ David Kostin.

3. The wrong kind of Fed rate cuts are coming, says JPMorgan.

The market is getting increasingly excited about the possibility of interest-rate cuts from the Federal Reserve, but London-based strategists at JPMorgan say the reasons behind the reductions are not likely to be supportive for stocks.

They say there are three types of cuts:

-- The first would be a scenario where the Fed is cutting because activity is clearly weakening.

-- The best, or Goldilocks, outcome would be a scenario where there's resilient growth but subdued inflation, and therefore no pressure on consumer purchasing power.

-- The third would be cutting even as some inflation pressure is showing up, "potentially in the background of the U.S. administration pushing for lower rates."

The strategists are expecting some combination of the first and third scenarios - where activity is slowing down but inflation picks up. "If this outlook gains traction, we think that investors will be disappointed," the strategists say.

Fed futures are now projecting 63bp of cuts by the end of the year, fully pricing in two 25bp cuts, with a rising chance of a third cut. This marks an increase of nearly 20bp from what was anticipated just a few weeks ago.

4. Morgan Stanley’s Michael Wilson said US stocks are likely to get a boost from Fed rate cuts if there isn’t a meaningful rise in the unemployment rate.

Jobless claims are holding up but have been steadily rising, suggesting that employees who lose their jobs are struggling to get back into the labour force.

5. Oaktree’s Panossian sees signs of exuberance in data center boom.

Armen Panossian, co-CEO of Oaktree Capital Management, said the rush of money chasing AI-related investments mirrors past bubbles.

Speaking to Bloomberg TV, he compared the current AI wave to the fiber optic boom of the 1990s. In both cases, too much capital began flowing into projects before users existed.

Panossian warned that the same risk is now emerging in AI, especially with data center construction. As excitement continues around AI and machine learning, Panossian’s warning feels timely. Rational investment should guide the way, not just fear of missing out.

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