Hedge Funds, Not Foreign Investors, Drive U.S. Market Sell-Off in 2025

Goldman Sachs recently reported that foreign investors sold $63 billion in U.S. equities since March 2025. This figure, while notable, represents a small share of the $18 trillion foreigners hold in American stocks.

The real story behind the numbers reveals a more complex market dynamic than a simple foreign exodus. Recent months saw U.S. stocks underperform international markets.

The S&P 500 fell about 10% this year, while Europe’s STOXX 600 gained 9%. President Trump’s new tariffs, including a 145% levy on Chinese imports, fueled uncertainty and pressured both stocks and bonds.

The U.S. dollar also weakened, nearing a one-year low. These shifts led some to question whether foreign investors are losing faith in U.S. assets. However, hard data tells a different story.

Treasury International Capital data showed net foreign private inflows of $166 billion in February, with foreigners increasing their holdings of U.S. securities.

Goldman Sachs still forecasts $300 billion in net foreign purchases of U.S. equities for 2025, only slightly below last year. Foreign investors now own 18% of U.S. equities, a record high.

Foreign Investment Dynamics in the U.S. Amid Market Turmoil

JPMorgan and the Institute of International Finance both found little evidence of mass foreign selling. Instead, hedge funds—both quantitative and discretionary—drove most of the recent sell-off, dumping about $750 billion in equities this year.

These funds unwound large positions after the S&P 500 peaked in February, causing a sharp correction. Foreign investors, meanwhile, continued to buy U.S. stock ETFs, even as some shifted allocations in response to political and economic uncertainty.

Bond markets also saw turbulence. Foreigners sold more Treasurys in April as trade tensions rose, but the scale remained modest compared to total holdings. Foreign investors still hold about 30% of U.S. Treasurys and corporate debt.

The U.S. market’s fundamentals remain strong. American companies post higher returns on investment than global peers, and U.S. assets remain attractive due to their liquidity and scale.

While the recent outflows reflect caution amid trade and policy shifts, they do not signal a structural retreat. The 2025 turbulence stands out for its speed, but not its size.

Past episodes of foreign selling were larger and often followed by market recoveries. For now, the data points to a market recalibration, not a crisis.