Morgan Stanley, JPMorgan say US stock underperformance likely short-lived

Analysts at JPMorgan and Morgan Stanley anticipate that the recent underperformance of US stocks will soon reverse, driven by strong economic growth forecasts and positive corporate earnings expectations.

After years of outperforming global markets, the S&P 500 has lagged behind its international peers since the start of 2025, as investors remain cautious amid uncertainty surrounding President Donald Trump’s policies.

Additionally, concerns have emerged over the rise of Chinese startup DeepSeek and its AI-powered chat models, fueling fears that the US could lose its leadership in artificial intelligence (AI).

Michael Wilson, a strategist at Morgan Stanley, expects capital to flow back into US stocks, describing the S&P 500 as the “highest-quality index” with the best earnings growth outlook.

In a note today, Feb. 24, Wilson wrote: "It is too early to conclude that the shift away from US equities is sustainable."

Meanwhile, Mislav Matejka, a strategist at JPMorgan, highlighted that softer expectations for major tech companies have been a key headwind to a broader US market recovery.

He noted that US earnings growth would have to fall below that of global markets to justify a strongly bearish stance, adding: "We do not advocate an underweight position in US equities, as we see a significant gap in growth and earnings compared to the rest of the world."

So far this year, the S&P 500 has gained just 2%, while the Stoxx Europe 600 is up 9%, and the Nasdaq Golden Dragon China Index has surged 18%. In contrast, the Bloomberg Magnificent Seven Index, which tracks the top seven US tech stocks, has declined 1.9%.