Summary:
U.S. stocks fall three days in a row, hitting consumer discretionary, with Tesla's market value shrinking and capital flowing to Europe and Japan.
US stocks have dropped for three consecutive months, with the hardest-hit consumer discretionary sector down nearly 14%. Tesla should take the blame as it has wiped out over one thirds of market value in 2025.
Strategists at the BofA shed light on where some of the capital flowing out of the US may be heading. According to their data analysis, Wall St saw an $8.9 billion outflow in the week to 30 April.
At the same time, European equities saw a $3.4 billion inflow, and Japanese equities saw a $4.4 billion inflow in the week to April 30 — its biggest week of inflows since April 2024.
The bank also revealed that its private clients, who collectively have $3.7 trillion in assets, began to worry more about deflation in the States, relative to inflationary risks over the past four weeks.
PIMCO told the Financial Times that recession risks are at their highest in years and warned investors may be underestimating Trump's resolve to restore the steep tariffs that roiled markets last month.
Still there is a silver lining. US companies are planning to buy back a record $500bn of their own shares as they prefer increasing EPS to business expansion with excess cash amid growth concerns.
According to JPMorgan, S&P 500 companies exceeded EPS consensus forecast by an average of 7.8% in Q1, significantly above what the bank had expected, in a sign of corporate resilience.
Buffett's "sushi legacy"
Warren Buffett on Saturday gave a full-throated endorsement to the five Japanese trading houses, more than a month after Berkshire Hathaway raised its stakes in those stocks to 9.8%.
"In the next 50 years, we won't give a thought to selling those," Buffett said. "We have been treated extremely well by the five companies." His designated successor Greg Abel also showed approval of the view.
Japanese companies' earnings from overseas investments topped 30 trillion yen for the first time last year, with US investments accounting for 26% of the total, the most of any country.
This reflects the growth of Japanese acquisitions and factory construction on American soil. That could help hedge soothe Washington's sheer discontent at outsourcing US manufacturing.
Adding to confidence, share buybacks announced by Japanese companies in April nearly tripled on the previous year as boards opted for placating investors over holding dry powder for tariff uncertainties.
That came in the wake of a record-breaking ¥20tn of repurchases in fiscal 2024, which analysts described as a "regime shift" in corporate Japan's approach to cash hoarding and balance sheet management.
Bruce Kirk, Japan equity strategist at Goldman Sachs, said the figures showed there was momentum for shareholders' corporate governance push "despite all the uncertainty caused by the tariffs and recession fears".
Europe headache
The Dow has lagged far behind the Stoxx 50 year to date as Europe outgrew the US in Q1, helped by more aggressive stimulus. US tariffs are also set to offer unexpected income source to European companies.
The findings of the survey from the EU Chamber of Commerce in China indicate that its members could take market share from American suppliers, including manufacturers.
Despite that, large employers are outlining the hit to consumer confidence, the threats to supply chains and the destabilising effect of prolonged uncertainty over the level of tariffs.
Executives argued that was hobbling their ability to plan. Talks between the EU and the US have made little progress, with Brussels set to impose retaliatory tariffs on 8 July in the absence of a trade deal.
Currency appreciation opens up a new threat to exporters. SAP and Schneider Electric are among the companies to warn investors of a potential hit after the euro climbed to a three-year high.
HSBC analysts have slashed their forecast for profit growth this year for the FTSE Europe index to 2.9%, warning that the stronger euro could "significantly affect" their overseas earnings.
Several major banks expect the euro to strengthen further. For instance, Athanasios Vamvakidis, BofA's global head of G10 currency strategy, predicts the euro will hit 1.17 by the year end.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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