Foreign buying surge may signal trouble ahead for the S&P 500

Capital Economics warns that the recent surge in foreign buying of U.S. equities may be a contrarian signal for the S&P 500. The firm says similar spikes in foreign demand preceded major market reversals during the dot-com bust, the global financial crisis, and the 2022 drawdown. Foreign ownership of U.S. equities has risen sharply to more than 21% from just over 6% in 1997, and the current buying wave is described as larger than earlier rally periods. The note suggests that if the AI-driven market boom unwinds, foreign flows could reverse as well, potentially coinciding with underperformance in U.S. stocks versus global peers. The dollar’s reaction would likely depend on whether the Fed eases policy more or less than other central banks. Overall, the article frames foreign inflows as a warning sign rather than a support for the rally.