Market Expert Ajay Bagga: Foreign Capital Pours Into US Assets—But Will Fed’s Rate Cuts Trigger Another Bubble Burst?

Despite the policy chaos unleashed on markets, the world continues to buy US stocks, bonds, corporate debt and other assets.

1. Foreign investors bought a net $192 billion of U.S. securities in June. This followed a record net purchase of $326 billion in May.

2. The net flow of foreign capital into the US for the second quarter was at $410 billion.

3. Net foreign capital inflows in H1 2025 are at $643 billion, on course to match the record $1.3 trillion net inflow from 2022. 

4. In the trailing last 12 months through June, a net $1.27 trillion was poured into U.S. stocks, Treasuries, agency and corporate debt.

The world clearly sees US assets as attractive despite the isolationist and protectionist policies unleashed this year.

US exceptionalism rules.
If the US assets are doing so well, based on fundamentals, why is there a clamour for rate cuts, which normally presage a slowing economy?
Does the US economy need a rate cut boost to head off a slowdown?
Or is the US economy running robustly, attracting huge capital inflows?

Both cannot be true.
The Fed seems to have chosen to cut in September.

Will this be a 1970s Arthur Burns pivot after promising a Paul Volcker-like blow to inflation?
These questions will be answered by the end of the year and well into 2026 only.

For now, the world is inflating the US valuations bubble and partying on gorging on US exceptionalism.
We know this works, till it suddenly does not work.
At that time, exits become too small for all the fattened party participants to get out on time.

Let's see how it ends this time.

What is clear is that this is late-stage euphoria.

Few hedge funds are carrying shorts on tariff-affected sectors like global autos, but the larger positioning is for continued US exceptionalism.

Read More - Asian Markets Rally on Fed Pivot, But India Faces Tariff Shock
 

The slight allocations to EMs, which are providing much better fundamental attractions, are still not large enough to pose a challenge to US exceptionalism. 
For now. It works, till it doesn't.