The US dollar has fallen precipitously this year, which would be a clear sign that investors are losing confidence in the American economy. The US stock market, the historic gold standard around the world, is in disarray. The impact has been that global investors are reconsidering their exposures to US assets. The S&P 500 crushed the pants off of European and Asian markets over the last 15 years. Today, it’s down 10% on the year and looks like it could be headed for its worst month since 2022.
According to Barclays, the US is about 25% of world GDP. Plus, it maintains an outsized 65% of the world’s stock market capitalization. The Trump administration’s continued hardline trade policies, including long-term tariffs on developed nations and China in particular, will sabotage any path to future economic growth. These concerns have forced global investors to look beyond domestic variations, demonstrating a profound recalibration in the calculus of international investment.
The Decline of the Dollar
This year, the US dollar index was down to its worst week since 2022. It’s a measure of the dollar’s strength against six major foreign currencies. The Euro jumped to its highest value against the dollar in more than three years. This increase signals deepening doubt over the strength and longevity of the US economic comeback.
With the dollar’s recent weakening, investors are diversifying their searches beyond U.S. markets for major growth opportunities. This latest movement represents a seismic change in what investors are willing to do. For almost 20 years, others have invested heavily in US financial assets. “Even if there is a steady de-escalation from here, the damage is done,” said Arun Sai, highlighting the long-term impact of current policies on investor sentiment.
What is even more revealing with these recent market actions is the clear, palpable loss of confidence in Trump’s economic policies. “Recent market action shows a loss of confidence in Trump economic policy,” noted Krishna Guha. Now those same investors are beginning to wonder about the sustainability of US exceptionalism. This change comes at a particularly opportune time, as the US has long played a dominant role in global finance.
Changing Investment Strategies
Rising interest rates and a booming S&P 500 are causing global investors to rethink their investments. What these analysts are highlighting is that the capricious and haphazard tariff messaging is what’s actually creating havoc. They think this instability has resulted in an unprecedented era of US markets underperformance. According to Alessio de Longis, “the comparatively inconsistent and capricious approach in communicating tariffs… offered a second driver of US underperformance.”
Additionally, Jason Blackwell remarked on the broader shifts taking place: “Add in the tariffs on top of that, and add in this de-globalization trend, and I think you had a series of events that really had investors rethinking their international exposures.” Tariffs and a changing global economic landscape are causing investors to reevaluate their playbooks. Consequently, they’re working hard to diversify their portfolios to lower their crippling dependence on the US market.
Ajay Rajadhyaksha at Barclays clarified that the need for alternatives to US investments are increasing to compete globally. “At least from a narrative standpoint, there seem to be some alternatives for international investors heavily over-exposed to the US,” he commented. This sentiment speaks to a wider emerging belief that other markets simply present better chances for expansion and larger returns.
The Future of US Markets
Even with these headwinds, most analysts continue to claim that the US stock market is a good long-term investment. They admit it’s become a little tarnished. What you should know Goldman Sachs analysts recently warned that new tariffs threaten to wreak havoc on already-slim profit margins for U.S. firms. They argue this may lower real incomes for US consumers and weaken the dollar’s fortitude. This modest but indefensible potential erosion would do even more to undermine investor confidence and change the dynamics of the market.
The historic supremacy of the US stock market is facing pressures like never before. Yet the Trump administration’s aggressive trade policies have created new, and in many respects unprecedented, levels of uncertainty that are changing investor sentiment. Consequently, many are rethinking their operations globally to reduce risk from volatility in the domestic markets.