It is unclear whether tariffs will improve the American economy, but for now, they are causing US stock indices to underperform their overseas counterparts. The MSCI World Index excluding the United States has risen by 18% since the start of the year, while the S&P 500 has gained less than 8%. Spain's equity markets have climbed by 26%, Germany's by 21%, Mexico's by 18%, Brazil's by 14%, and Canada's by 12%. The uncertainty of Donald Trump's policies is prompting capital outflows. However, the United States has its own advantages.

Global and US stock index dynamics

The economy's resilience to tariffs, strong corporate earnings, record share buybacks by US issuers, artificial intelligence technologies, expectations of Federal Reserve monetary policy easing, and, finally, dip-buying crowds remain the main drivers of the 30% S&P 500 rally from its April lows.

With the exception of the latest labor market report, the US economy has shown remarkable resilience to Trump's tariffs. Investors have begun to feel that the worst is behind. The peak of trade uncertainty has passed. The probability of a recession over the next 12 months has fallen from 65% in 2023 to 35%. At the same time, markets are counting on the Fed to resume its monetary expansion cycle in September. According to FOMC member Michelle Bowman, the central bank should cut the federal funds rate three times to prevent the economy from freezing.

For S&P 500 companies that have reported second-quarter results, earnings came in at 10%. This is four times higher than what Wall Street analysts had expected before the start of the reporting season. Combined with the economy's resilience to tariffs and the Fed's intention to resume a monetary easing cycle, this is encouraging companies to buy back their own shares at a record pace. Since the beginning of the year, the figure has risen by $983.6 billion. Forecasts suggest that it will exceed $1.1 trillion by the end of 2025, marking a new record.

Dynamics of share buyback volumes by US companies

However, the skies over the S&P 500 are not entirely clear. For many years, the broad stock index outpaced its foreign peers, making US equities expensive and European ones cheap. In 2025, the process has reversed—money is flowing from the New World to the Old. And not only that. According to Bank of America, capital is moving from US equity funds into money market funds. In the week leading up to August 6, the former lost $28 billion, while the latter gained $107 billion.

Large players are probably using the strength of the US economy, the approaching date of the Fed's interest rate cut, and impressive corporate earnings to sell shares to the crowd, who are eagerly buying the dips.

Technically, on the daily S&P 500 chart, bulls are attempting to restore the uptrend. However, if they fail, a 1-2-3 reversal pattern would emerge. In this case, it would be wise to sell the broad stock index. The necessary condition is a drop below the support level of 6,320.