US stocks are back on a winning streak, hitting several record highs in recent weeks. One big reason is that the “sell America” trade is over, and American businesses now seem set to outperform again.
The first four months of 2025 were an American sell-off story. President Trump began announcing new tariffs on imports shortly after taking office in January, as expected. But the severity of those import taxes surprised investors, triggering a sell-off in US stocks and bonds alike. That was unusual, given that US Treasury securities are typically the safe-haven asset investors buy when American stocks seem too risky.
The two charts below show the divergence in US and foreign stocks. Through the end of April, US stocks were down 7.5%, while foreign stocks were up 4.6%, for a total US underperformance of 12.1 percentage points.
American stocks are now clawing back ground. During the past three months, US shares rose 15.1% while foreign shares rose 7.6%. “Foreigners love American securities,” economist Ed Yardeni of Yardeni Research declared in a July 21 analysis.
The recovery in US assets is happening as Trump announces trade agreements that remove some of the uncertainty about the cost of importing and exporting hundreds of billions of dollars’ worth of goods in the coming months. That’s clearly fueling an upbeat mood among investors.
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But there’s a lot more going on. Stocks rise or fall based on investor assessments of corporate profitability. And many American firms have been signaling that they can manage the Trump tariffs with a minimal hit to profits as they announce earnings results for the second quarter.
“The early batch of Q2 earnings calls reflected a broadly resilient tone,” Mehmet Beceren of Rosenberg Research wrote in a July 25 report. “Companies across sectors (including industrials, consumer staples, and health care) emphasized proactive mitigation strategies and operational agility.” That’s a credit to the remarkable ability of big American companies to adapt to challenges and protect profits.
Read more: Live coverage of corporate earnings
American firms also look better in comparison with their global competitors, which also face pressure from Trump’s tariffs, on the other end of Trump’s trade talks. While Trump’s import taxes raise costs for American businesses that need imported products, they also create pressure for foreign firms selling to the United States to lower their own prices. Those firms could face more competition at home if part of the trade deal involves more access for US companies to foreign markets. Trump’s tariffs may also slow worldwide growth, hitting revenue and profits across the board.
In that light, some foreign markets may now seem a bit more vulnerable than they did a few months ago. Tom Lee, co-founder of investing firm Fundstrat, pointed out in a recent video presentation that American stocks have broadly outperformed the rest of the world since 2019. “That was broken because of the tariff wars,” he said. “But I think the trend has actually resumed. And one reason for that is earnings growth.”
Some firms are reporting financial harm caused by tariffs, but overall profitability among US firms seems to be holding up. With about 40% of firms reporting second quarter earnings so far, FactSet points out that an average net profit margin of 12.3% is above the long-term average. If that sticks, it will be the fifth consecutive quarter with a net margin above 12% for the S&P 500 (^GSPC) index of US firms. Analysts expect profitability to get even better during the next two quarters. Investors shunning US stocks a few months ago may now be buying out of FOMO.
The sell-off in US bonds has also abated. The 10-year Treasury rate rose about six-tenths of a point from early April to mid-May, just as Trump’s dramatic tariff threats were roiling markets. That was an unusual move, since investors typically buy Treasurys as a safe haven when there’s market turmoil, and more buying pushes rates down. The rise in rates indicated that buyers were selling as if they had lost faith in the whole US market.
Read more: What is the 10-year Treasury note, and how does it affect your finances?
If they did, they’ve gotten religion again. Yardeni points out that foreign purchases of US government securities hit a record pace for the 12 months ending in May. “Foreigners remain very kindly disposed to buying US securities,” he wrote. Rates, in turn, have declined, with the 10-year falling from 4.6% on May 21 to 4.34% in late July.
Whether America is back for good or just for a while remains an open question. There’s still plenty to worry about. Trump’s tariffs haven’t reignited inflation yet, but with the average tax on imports jumping from 2.5% at the start of the year to about 20% now, higher prices for some products are certainly in the pipeline.
Many economists think inflation, currently 2.7%, could rise to around 4% by year-end. Businesses and consumers are taking that risk in stride, for now. But there’s also a hiring slowdown, with rising odds of 1970s-style “stagflation” materializing.
Massive amounts of federal borrowing are also putting upward pressure on interest rates and making federal finances ever more precarious. Some economists thought the spring sell-off in Treasurys was the start of a debt crisis. It could still unfold that way, given that some financial crises start off slowly, then happen quickly. For now, the consolation may be that everybody else has problems too.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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