Buy the US market downturn? These strategists are looking abroad.

The Nasdaq Composite is down 13% and the S&P 500 has fallen 9% since mid-February. Strategists are weighing whether this could be the first cracks in the “U.S. exceptionalism" trade that drove stocks to new highs not long ago.

“Is this correction once again offering investors an opportunity to buy high-quality U.S. growth names?" wrote Louis Gave, head of Gavekal Research, in a note to clients on Tuesday. “Probably not. The idea that the U.S. is the only place where global investors can deploy capital is now being challenged by new policy and market trends,"

That is partly because uncertainty over on-again, off-again tariffs, fiscal policy, and the country’s debt is hitting a well owned and not exactly cheap U.S. market. But it is also because of an emerging contrast.

Both China and countries in Europe are bolstering spending, which makes their prospects for growth prospects look, at least, less bad, as the U.S. tries to cut back. Treasury Secretary Scott Bessent described it as a “detox" from excessive dependence on government outlays.

The iShares Europe exchange-traded fund is up nearly 13% so far this year and the iShares MSCI China ETF is up 16%. The S&P 500 is down 4%.

Chinese stocks have been shaken out of a rut, in part because the Chinese upstart DeepSeek’s AI models have forced a reassessment about whether the U.S. is the only game in town in terms of artificial intelligence. Also helping are Beijing’s continued vows to revive consumer spending and investment.

“Chinese equity markets are once again competing for the marginal dollar of global equity allocation," Gave wrote.

Japanese stocks are also set up for a boost because the yen and yields on Japanese government debt have been rising. “When the yen rises, and—even more—when Japanese government bonds stop being certificates of confiscation, Japanese savers tend to repatriate capital," Gave said.

But it is perhaps the sentiment shift in Europe that is most noteworthy. European stocks are outperforming U.S. stocks by the biggest margin in 35 years, at a highly unfavorable time for the region given the Trump administration’s stance on tariffs and Ukraine, Luca Paolini, chief strategist at Pictet Asset Management, told Barron’s.

Fiscal policies in European countries are set to become much more stimulative, suggesting higher yields and a stronger euro that could encourage European savers to stay at home rather than invest abroad, Gave wrote. Even Germany looks poised to abandon decades of fiscal austerity to ramp up spending.

“The U.S. is more expensive than its peers, and now shows negative momentum, while domestic policy uncertainty keeps on growing," Gave wrote. “On the other hand are non-US equity markets, where the relative momentum is suddenly much more attractive."

Others agree, with some caveats. European stocks’ run-up in recent months has put them closer to fair value versus the U.S., Paolini said. Whether gains continue will depend in part on what happens in Germany in the next couple of weeks as lawmakers vote on whether to increase spending, the strategist said. The shift could add 0.5% to 1% to Germany’s gross domestic product over the next couple of years.

President Donald Trump’s warnings of tariffs against Europe that would take effect in April are also a risk. Paolini, like the market, isn’t convinced these levies will be implemented in the way the president has threatened. But he also noted that if Trump’s trade policies do damage the world economy, Europe and China would have more room to reflate their economies than the U.S., which is grappling with higher inflationary pressures.

“If Trump imposes 25% tariffs on Europe, we are likely to see a rotation back to the U.S.," Paolini said. “But the rally in Europe is fundamentally driven, not just sentiment. There is a genuine improvement in Europe, even politically they are much more united than a couple months ago, and the euro is strengthening,"