US Retail vs Oil investors
Who is right?
Thursday was beautiful in London—warm and sunny. Naturally, I expected financial markets to tank, as they typically do when London weather turns pleasant (nature's way of maintaining cosmic balance, I suppose). But no! The markets defied my weather-based technical analysis and rallied hard all week.
Global stocks rose across the board, delivering sparkling performance even after currency adjustments. Who needs meteorology when you have economics?
Why US Markets Went Up (Despite My Sophisticated "London Weather" Indicator)
Three factors drove this rally
President Trump played nice for once. He softened some auto-sector tariff announcements, and rumors swirled that China negotiations might resume—once both countries figure out which important person should talk to which other important person. Diplomacy: it's basically just expensive matchmaking.
Two of the Magnificent Seven tech companies actually remembered how to make money. Microsoft and Meta posted stellar results, proving immune to the tariff wars. Unlike Amazon and Apple, they don't sell as much to regular people (who would've thought ignoring consumers could be profitable?). Microsoft sells to corporations, and Meta just got better at selling your data to advertisers. Meanwhile, AI darlings like Vitsra and Palantir rose 10% in the slipstream—riding those coattails like professional wedding crashers.
The jobs report wasn't a total disaster. Friday's non-farm payrolls showed fewer jobs were axed in April than expected. The bar for good news is apparently "not as terrible as we feared"—economists' version of a participation trophy.
The rally was so impressive that financial media breathlessly called it "the best since 2004!" Link JP Morgan reported record net buying by US retail investors. Link. Apparently, they don't believe a recession is coming—proving once again that optimism is America's most renewable resource.
Oil Gets Depressed While Stocks Party
Meanwhile, oil prices have been falling all year, breaking below the psychologically important $60 level. It's like oil was invited to the same party as stocks but spent the evening in the corner thinking about recessions and tariff wars. Talk about a market buzzkill.
Why Are US Markets Being Schizophrenic?
The out-performance of the US markets over the last month has been because of retail investors whereas institutional investors dominate the oil market. So the US market investor is not having 2 different points of view. If both the markets had moved in the same direction, it might have felt like consensus and we should have best re-considered US exceptionalism.
Since that was not the case: Despite the US market's stunning performance, I noticed that the USA wasn't actually the week's winner. That crown goes to Germany, which benefited from both Trump's auto-tariff adjustments and falling oil prices for its chemical industries. The German market has been rising the fastest in comparison to everyone since early April lows.
Chancellor Merz is also enjoying an unexpected political tailwind. The far-right AfD, once buoyed by Elon Musk's support at rallies led by Alice Weidel, is now in tactical retreat. The Financial Times report this week that Weidel called Trump's actions "far too aggressive and self-defeating"—a rare moment when European and American right-wing politicians aren't texting each other heart emojis.
Should You Go All-In on Germany?
Absolutely not! Well, unless you enjoy making financial decisions based on four months of data. The US market has dominated for over a decade. Only a fool would bet everything on Germany because of a 29% outperformance over four months.
That said, don't wait a decade to diversify beyond the US. Timing the market is like timing your microwave popcorn—wait too long and everything burns.
The UK: Quietly Doing Alright
The UK markets have had a solid year too, outperforming the US by 16% year-to-date - when looked at from the point of view of a sterling investor. While this may convince a UK based investor to consider investing in his/ her country, the story is not dis-similar if one is a USA based investor. If I was an American investor - I would have made 17% extra if I was invested in a UK ETF. While the former finding may make a UK investor to shun the USA, the longer the UK outpeformance continues, the latter fact might make US investors with their vastly larger capital pools to wake up and notice.
UK has plenty of acquisition targets (BP, ITV, and Deliveroo are all on shopping lists starting last week), and Chancellor Reeves is practically begging UK pension funds to buy British assets. After the recent election losses, the Labour government might actually focus on economic growth—imagine that!
The UK also has an excellent educational system, with US student interest in UK universities up 25%. While Australia and Canada have student visa caps, the UK is ready to welcome anyone fleeing Trump's "battle axe attack on US education." Nothing says "special relationship" like educating each other's disgruntled youth.
The Bottom Line: Diversify, For Heaven's Sake
Markets face exceptional uncertainty. The winning strategy of the last decade—all-USA-all-the-time—might not work forever. While retail investors sometimes outperform institutional investors such as those that invest in the oil market (not having those pesky risk management controls such as margin calls), most people don't obsessively track market developments.
We may not know who is right - or may know only when it is too late and all the good gains are gone.
The only protection is sensible diversification. Don't just buy a global tracker where the US represents 65-70% of holdings. Spread your bets to include tomorrow's potential stars. After all, investing solely in the US is like going to an international buffet and only eating the cheeseburgers—you're missing out on a world of flavors, and possibly better returns.