The “long-standing narrative” of American exceptionalism has weakened following US president Donald Trump’s overhaul of global trade, and investors are currently drawn to “more balanced” global powers such as Europe and China, Davy has said.
The group published its Wealth View report on Friday, which covers the second quarter of this year, and sets out its assessment of the investment environment globally.
The report said Europe and China offered “relative valuation appeal and clearer policy direction”, in contrast with the United States.
It noted that Donald Trump’s “sweeping tariff measures” are “reshaping” global growth expectations, investor sentiment, and asset valuations.
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Although risks have arisen, Davy said, recent volatility has also brought valuations for investors “closer to fair value”, and “particularly outside the United States”.
It pointed out that the first quarter of the year marked a “significant change in global market leadership”.
“What began as a year of US optimism, European scepticism, and Chinese uncertainty has shifted meaningfully,” the report said.
“The US administration’s protectionist pivot, culminating in the April tariff announcement, has clouded the near-term outlook.”
The Davy report covered other aspects of the geopolitical landscape too, noting that China has “moved forward” with targeted stimulus and delivered a “notable AI breakthrough” through DeepSeek.
In Europe, it said there has been a “policy reset”, pointing to expanded German defence spending and EU-wide fiscal plans, which it said has “strengthened investor confidence”.
Davy chief investment officer Donough Kilmurray said the world economy was stable before the “tariff shock” on April 2nd, with the US “decelerating from an above-average pace, and Europe and China inflecting upwards after periods of weakness”.
“While the tariffs could push the US and Europe into recession, we note that this is a man-made crisis, not an economic one, and therefore it can easily be averted,” it said.
“Rather than base our investment strategy on one path, good or bad, we prepare our portfolios for a wide range of outcomes.
“Put simply, we expect more policy twists and market turns, and so we maintain a broadly diversified portfolio.”
Deirdre Kennedy, head of Davy global fundamental equities, said Mr Trump “prides himself” on being unpredictable.
“Markets like certainty,” she said. “What’s an equity investor to do? Recent market action reminds us why we need to be diversified, beyond one stock, one sector, or one country.
“Ever the showman, Trump built up tension on tariff announcements to the April 2nd deadline. By the 8th his ‘audience’ was threatening to leave.
“The volatility that equity investors have experienced demonstrates why we need to take a long-term view and focus on our investment goals, even though it’s so difficult amid market turmoil.”
In relation to the dollar, Davy analysts said they did not believe Mr Trump has “destroyed the currency’s reserve status yet, but he clearly wants a weaker dollar, and global investors are waking up to their over-reliance on it.”
“The exchange rate is still over-valued, and unless the global system breaks down completely, the international capital flows that have long supported the dollar will likely work against it,” the report added.
