It was another dramatic week in global politics but the FTSE ended up right around where it started (in the 8600s), as did the S&P500.
A major headline during the week came on Tuesday when a survey of fund managers revealed the greatest rotation out of US stocks since records began in 1999. Perhaps UK equities will benefit from this shift in sentiment:
Source: trustnet, BofA Global Fund Manager Survey
You can see from the above chart that while fund managers are now underweight US equities, there have been times in the past when they have been more underweight.
What’s exceptional about recent events is the sharpness of the change.
And although we are speaking in hindsight, it isn’t easy to come up with reasons for the sudden shift. The theme of overvalued US mega-caps is one that we’ve touched on before in this report.
The “Magnificent 7” have struggled in 2025 as investors have finally started to worry about valuations and the AI boom:
Apple (NSQ:AAPL) down 14%
NVIDIA (NSQ:NVDA) down 12%
Microsoft (NSQ:MSFT) down 9%
Amazon.com (NSQ:AMZN) down 11%
Alphabet (NSQ:GOOGL) down 14%
Meta Platforms (NSQ:META) up 1%
Tesla (NSQ:TSLA) down 39%
On top of that, we have a fractious political environment with ongoing concerns around tariffs and trade wars in addition to pre-existing geopolitical concerns (in particular Russia and Ukraine).
The only thing that’s not causing any major problems at this time is the economy. US initial jobless claims on Thursday showed only a very slight increase in the number of individuals filing for unemployment insurance.
On Wednesday, the Federal Reserve left its target interest rate unchanged 4.25%-4.5%. It is unchanged since December but two further rate cuts are still expected during 2025:
Source: Trading Economics
The Fed has a dual mandate that includes both maximum employment and stable prices (meaning inflation of 2%).
They are winning in terms of full employment, but have not quite managed to hit their 2% inflation target. However, they aren’t too far off that target either. The CPI release two weeks ago showed prices rising annually at a pace of…
