QUESTIONING THE “US EXCEPTIONALISM”

Almost eight weeks into the new US administration, the S&P 500 Index has recently gyrated around a 10% technical correction* from its 19-Feb-25 high, while the tech-heavy Nasdaq Composite Index is off by 11.5% as depicted below:

 

Performance (in USD) as at 14-Mar-25 since	Since US election on 4-Nov-24	Since Last US market peak on 19-Feb-25	Year-to-date (31-Dec-24 till date)
MSCI All Country World Index	+0.6%	-5.6%	-0.4%
MSCI USA Index	-1.3%	-8.6%	-4.3%
NASDAQ Composite Index	-2.3%	-11.5%*	-8.1%
MSCI Europe Index	+7.3%	+3.3%	+7.8%
MSCI Emerging Market Index	-0.9%	-1.5%	+4.5%
MSCI China Index	+15.1%	+4.7%	+19.7%

 

*Market correction refers to a period of price drop by at least 10%. 

 

This long-awaited market drop was mainly due to the tech bubble popping (aftershocks from the news about Chinese generative AI upstart DeepSeek) and negative economic surprises from the Federal Reserve’s hawkish “pause” to the US president Trump’s disruptive tariff policies on Canada, Mexico, China and recently Europe. Donald Trump is certainly more focused on his legacy in this 2nd term as highlighted by his comment on FoxNews: “There could be a little disruption ... what I have to do is build a strong country. You can’t really watch the stock market ...”  

 

 

According to the latest estimates from the Organisation for Economic Co-operation and Development (OECD), the implication has been cut to GDP growth forecasts: global growth is expected to slow from 3.2% in 2024 to 3.1% in 2025 while US’ annual GDP growth is projected to fall from initially 2.4% for 2025 to now 2.2%. 

 

Post-US election euphoria has morphed into collapsing consumer confidence, weak business optimism, declining CEO hiring and spending and delayed interest rate easing by the Federal Reserve (remains subject to the timing & scope of tariff implementation). While the US PPI (Producer Purchase Index) for Feb-25 came in below estimates, we believe that it will be the first channel where tariff inflation will appear as US raises import taxes on several industrial inputs. Besides, the Federal Reserve is expected to follow the “Powell Rule of 3”, i.e. require three consecutive soft inflation prints to cut interest rates by 25bps at the next meeting, which does not appear to be any time soon (unless a sharp economic slowdown/recession is triggered before).   

 

Another thing that stood out: credit markets were unfazed → high yield spreads have barely moved and this is not usually expected if US were to be heading into a real economic slowdown. With a solid earnings season behind us and no signs of stress in credit, this looks more like a valuation reset. Investors are still buying the dip with the third largest weekly inflow into equities ever from BofA private clients. Pullbacks are normal and usually for any long-term investors, market corrections are often used as investment opportunities as depicted below: 

 

 

Mauritian market update: The local bourse as represented by the SEMDEX kicked off the year on a positive note but saw a weakening momentum as from 19-Feb-25 (-2.4% in MUR as at 14-Mar-25 vs. year-to-date: +2.7%). Even MCBG, the largest companies listed, was not left unscratched, dropping from MUR 474.00 on 18-Feb-25 to MUR 466.50 on 14-Mar-25. On the forex front, the MUR appreciated by 3.9% against the US dollar (31-Dec-24 = 47.03 vs. 14-Mar-25 = 45.21) and 0.1% against the EUR (31-Dec-24 = 49.08 vs. 14-Mar-25 = 49.02) based on the Bank of Mauritius mid-rate.