Ditching U.S. Goods but Binge-Buying U.S. Stocks: Foreign Investors Pour in at Record Pace

When President Trump announced “reciprocal tariffs” and threatened to “annex Canada,” markets briefly worried: Would foreign buyers shun U.S. financial assets?

 

So far, the opposite is true for U.S. stocks. Federal Reserve data shows foreign investors bought U.S. equities at a record pace in Q2, pushing their share of U.S. stock holdings to nearly 32% of their U.S. asset allocations—the highest since 1968.

 

This reflects a reality: While foreigners are cutting back on U.S. travel and certain American products, U.S. stocks remain too attractive to pass up. Foreign investors are snapping up U.S. equities while shorting the dollar, possibly hedging their U.S. exposure.

 

Analysts credit this partly to the AI boom, with tech giants like Nvidia, Microsoft, and Google driving massive stock gains. Rob Anderson, U.S. industry strategist at Ned Davis Research, commented, “Tariffs have led many foreign consumers to boycott U.S. goods, but demand for U.S. stocks stays strong.” He noted that even Canadians avoiding American products are buying U.S. equities.

 

Fed data shows foreigners poured $290.7 billion into U.S. stocks in the three months ending June 30.

 

Bank of America’s global investment strategist Elyas Galou, citing Treasury International Capital (TIC) data, said foreign holdings of U.S. stocks could rise by $2.8 trillion this year as of July.

 

 

Per BofA’s Fed data, foreign investors now hold ~$18 trillion in U.S. stocks, ~30% of the $60 trillion total market cap—the highest share since 1945. “International investors are buying U.S. stocks at a very robust pace,” Galou said.

 

While U.S. stocks have been solid this year, returns lag other major markets. The S&P 500 has underperformed indices in Canada, Mexico, Brazil, Japan, and China, whether in local currencies or dollars. Year-to-date, the MSCI World Index is up 15%, on track to outperform the S&P 500 for the first time since 2017. Excluding U.S. stocks, the MSCI World Index is up 22%, while the S&P 500 gained just 13%.

 

CFRA’s chief investment strategist Sam Stovall expressed surprise at the foreign buying spree: “If their home markets are hitting record highs, why come to the U.S.?” He noted a weaker dollar also drags returns. Stovall believes foreign investors are selectively betting on AI, targeting large-cap tech stocks with unique U.S. market weightings. He highlighted that the tech sector has “hit record highs 26 times this year.”

 

Foreign investors’ timing isn’t bad—U.S. stocks have soared since bottoming on April 8, with the Fed’s first rate cut of the year sparking a fresh rally. BofA’s Galou said fund flows suggest this buying continued into Q3, with EPFR data showing international investors adding to U.S. stock funds at the fastest pace since March.

 

Brian Jacobsen, chief economist at Annex Wealth Management, said these investments reflect a pragmatic view of financial markets, not U.S. government policies. “Many foreign investors avoiding U.S. bonds realize their frustration is with the U.S. government, not American companies,” Jacobsen explained.