Earlier this year, when US President Donald Trump announced his Liberation Day tariffs, stocks everywhere plunged. Many dropped by double digits in under a week and their freefall was only halted by his decision to suspend the tariffs for 90 days. On Wednesday, that 90-day period came to an end and a new set of tariffs was announced.

Unlike what happened in April, stocks this week continued their recent rise, up for the week, radiating outwards from the US to move markets elsewhere. European markets continued romping upwards and London’s FTSE 100 set an all-time record of nearly 9,000 on Thursday.

There’s both good and bad news in this for the UK Chancellor, Rachel Reeves. On one hand, the rally shows investors are still willing to put money to work in Britain, suggesting some confidence in her growth strategy ahead of the Autumn Budget. The bad news is that the City is still underperforming compared to its continental peers — better than France but weaker than Germany, Italy or Spain. This reveals continued jitters about the UK’s fiscal trajectory, which also shows up in the higher interest rates Britain must pay on its debt.

To call this rally during a trade war peculiar would be an understatement, though there may be some logic to it. Traders seem to be anticipating the positive effect on corporate earnings of a number of factors. First, fiscal loosening is back thanks to the US Congress’s recent passage of the “Big Beautiful Bill”, Germany’s ambitious spending program and recent pledges by Nato countries to raise their defense expenditures. All of this will inject money into the economy in the short term.

There also seems to be continued faith in the transformative impact of AI and the consequent productivity boom. Yesterday, for example, Nvidia briefly became the first company ever to reach a $4 trillion market value. Perhaps most importantly of all, the idea of Taco trade (Trump Always Chickens Out) really seems to be sticking. Investors now seem to have decided that the President’s tariffs are all talk, something his repeated deferrals would seem to affirm. It’s not clear whether the recently-imposed tariffs are due to begin next month or in September, but the betting in markets is that the dates will just keep getting pushed off indefinitely, allowing markets to keep rallying.

Given the President’s notoriously mercurial character, it seems a lot to bank on. However, there’s something else going on which perhaps gets less attention but matters a lot, especially to markets outside the US. For all the continued talk stateside that American exceptionalism will keep driving the market up, the US is actually not the place to be just now. Germany’s Dax is up nearly 25% this year, Hong Kong’s Hang Seng by 20%, Johannesburg by more than 15% despite a flatlining economy, and London’s a more modest but still impressive 10%.

However, since Trump took office the S&P 500 has risen by only about 3%, far shy of the average annual increases of 9% over the last 15 years, let alone the 10% of the Biden years. In other words, what we’re seeing in the dollar, gold prices and bond markets is showing up in stocks too: global investors are rotating out of the US and going elsewhere.

That may change. The world’s turn away from the US may be temporary, and the attractions of investing in the world’s biggest economy may eventually overwhelm anxiety about the direction of American economic policy. But for now, it appears that any further uptick in American stocks will be surpassed by those elsewhere. America’s exceptionalism, in short, may no longer be seen as a virtue.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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