Stock investors who reallocated their positions to foreign companies due to concerns over the future of the U.S. bull market are now returning home as uncertainty rises over the health of emerging markets, geopolitical tension in Asia and the pace of European growth, as outlined in a recent story by The Wall Street Journal. In January, a wave of volatility threw a wrench in the momentum of the nine-year bull market as fears including President Donald Trump's protectionist trade rhetoric, rising inflation and tightening monetary policy added to fears of a looming U.S. recession. (See also: Stocks Take a Hit on Trump’s Summit Cancellation.)

Domestic Growth Looks 'More Attractive' 

Investor concerns over a U.S. market correction proved to be overblown, at least for the time being. Since the start of May, the SPDR S&P 500 ETF Trust has gained roughly 2%, with the S&P 500 Index up by 1.55% for May as as of 1 p.m. today. Meanwhile, the iShares MSCI Eurozone  ETF has suffered a 4.4% loss over the same period, and the iShares Core Emerging Markets ETF has sank 2.2%.

Jonathan Golub, chief U.S. equity strategist at Credit Suisse, expects the trend for U.S. stock outperformance versus the worldwide market to continue as the growth of European returns decelerates and rolls over, according to the WSJ. "Investors are going to re-evaluate how they compare the U.S. to the rest of the globe because the U.S. is going to look more attractive," stated Golub.

Today's decline in U.S. equities markets shows just how fragile the gains are in May with less than three days left in the month. Concerns about political and financial turmoil in Europe was the key driver dragging down stocks, showing even the U.S. is not immune. The S&P 500 was up by 2.7% at the market's close on Friday before pulling back today.

Strong Dollar, Eurozone Woes Drive Inflows

Meanwhile, the rising value of the dollar and a solid corporate earnings season in the U.S. has run counter to concerns that domestic economic expansion would slow relative to growth in Asia and Europe. 

The wave of funds flowing into U.S. equities in recent months comes after a decade where investors bet more heavily on international markets. In 2017, as U.S. indexes reached all-time highs, the inflow of capital into international stock funds still outpaced purchases of domestic equity mutual and ETFs at a rate of $4 to $1, according to Morningstar data and as reported by the WSJ.

In April, $8 billion of inflows into world equity funds marked the lowest in almost 18 months, according to the Investment Company Institute. The first three weeks of May saw $4.4 billion flow into U.S. stock funds, compared to $3.6 billion into international stock funds, setting up this month to become the first with domestic equity inflows since January. 

A strong U.S. labor market, alongside corporate benefits from the Trump tax cut, have helped domestic firms meet forecasts, while eurozone crises have dragged the region's Citigroup Economic Surprise Index, a measurement of how expectations are being met, to its lowest level in seven years. As strong expectations in the U.S. drive up the dollar's value, weakening the attractiveness of holding overseas assets, many investors have dumped their stakes in international funds, demonstrating the high level of vulnerability that global funds face on rapid currency shifts. 

Beware Overly Optimistic Market Indicators

Still, some analysts on the Street are skeptical that May's uptick can offer anything more significant than a short-term gain, as pressures on the U.S. economy are seen as ultimately leading to a major market correction. 

In a recent interview with CNBC, Bianco Research President James Bianco warned that biased indicators are signaling an "A+" economy that can withstand rising interest rates, yet in reality, "it's more like a B- economy." As a result, he expects the Federal Reserve Bank to make policy errors based on skewed data.