Evaluation of Investor Perspectives on 'America Inc.' Post 100 Days under Trump Administration
The rocky ride for markets in Trump's first 100 days leaves investors uncertain about the US's long-term appeal
The turbulent journey for markets during the Trump administration's initial 100 days has led some investors to explore other investment destinations, but it remains unclear if this denotes a lasting departure from the US.
Markets have experienced significant rallies, driven partly by optimism about trade negotiations, but concerns persist regarding the sustainability and strength of any bounce-back in asset prices. As a result, many investors are diversifying into international assets or ensuring they're not overexposed to the US in their quest for more predictable policy conditions.
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Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., addresses the pressing concern: "We're unsure if this has caused irreversible damage to the US markets and economic system, but we haven't got a definitive answer over the long term."
US partners express doubts about the administration's reliability concerning trade deals and other matters. A recent shift in rhetoric on trade has fueled modest equities rallies, pushing them back near their April 3rd level and a slight rebound in the dollar.
Nonetheless, since Trump's January 20 inauguration, the S&P 500 has dropped about 8%, and the dollar index has weakened by approximately 9%. April 30 will mark the 100th day of Trump's presidency.
The volatility stems from fears that Trump's overhaul of global trade will harm the US economy, causing a readjustment. Criticism over Federal Reserve chair Jerome Powell's performance has also triggered a sharp sell-off as investors fretted about central bank independence. Moreover, there are concerns about potential deeper damage.
Citadel's founder and CEO Kenneth Griffin expressed his concern about the administration's impact on US Treasuries at a Semafor conference on Wednesday: "The brand needs to be protected, and the administration needs to exercise caution to avoid inflicting potential damage." White House spokesperson Kush Desai assured that the Trump administration was dedicated to preserving the US dollar's strength and power.
Analysts have unveiled mixed evidence of reallocations from US assets, with varying opinions on whether there will be a definitive shift away from US dominance. Jens Nordvig, Exante Data's founder, posits in a recent note that a "structural shift in asset allocations is underway," as investors globally search for alternative reserve currencies.
Although Nordvig doesn't predict the US dollar losing its reserve currency status, "it does mean that a wide array of investors will be looking to reduce their exposure to the US dollar if possible," he said.
Observers will be keen to see any significant changes in foreign exchange reserves held in dollars and the dollar's share in global payments, but analysts say it might take years to glean conclusive evidence.
The share of US dollar holdings in global foreign exchange reserves has plummeted to 57.8% in Q4 2024, down from 66% 10 years prior, according to IMF data.
"An intensification of geopolitical divisions will, at the margin, prompt some central banks to expedite their transition from the dollar," said Gary Smith, a client portfolio manager at Columbia Threadneedle Investments.
A recent sell-off in the Treasury market, the foundation of the global financial system, has raised concerns about foreign selling—accounting for approximately 30% of the $29-trillion US government bond market.
Oxford Economics reported in a research note that market movements indicated a broader departure from the US by investors of all kinds. Tolou Capital Management, a New York-based macro hedge fund, is increasing its gold allocation and decreasing its long-term Treasury exposure due to a brewing crisis of confidence in dollar-denominated safe-haven assets.
Evan Russo, CEO of Lazard's asset management, anticipates that the rest of 2024 will witness portfolio rebalancing away from the US. Ultra-high-net-worth individuals are apprehensive, and the number seeking asset diversification beyond the US is increasing daily, said Nuri Katz, president of Apex Capital Partners, an overseas advisory firm.
Goldman Sachs portfolio strategy research suggests that foreign investors have sold about $60 billion in US stocks since March, with European investors driving the selling. A Barclays report concurs, stating that international investors have repatriated US assets, but notes there is little evidence to support a sustained shift away from US hegemony.
Not all selling can be attributed to policy changes. "The US dollar was overvalued for several years until recently, and one could argue that it's simply returning to a more reasonable valuation," said Todd Rabold, a partner at Callan Family Office, a wealth management firm.
Jitania Kandhari, deputy CIO of the Solutions and Multi-Asset Group at Morgan Stanley Investment Management, remarked that valuations for US equities and the dollar were stretched even before the Trump administration's tariffs.
Some believe that any departure from the US will be temporary, as the sheer size and liquidity of US markets and economy persistently curb the appeal of alternative investment destinations such as Europe and China.
Tara Hariharan, MD at global macro hedge fund NWI Management, asserted that several pillars of US exceptionalism remain intact, implying that it will likely remain a beacon for global capital in the coming decades.
- In light of the volatile market conditions, some investors are seeking new investment destinations, but it is uncertain if this signals a lasting departure from the US.
- Due to the unpredictable nature of US policy and trade negotiations, many investors are diversifying their portfolio, employing cookies to track user patterns on affiliate websites.
- The S&P 500 has dropped about 8% since Trump's inauguration, and the dollar index has weakened by approximately 9%, raising concerns about the long-term appeal of the US economy for business and investing.
- The Trump administration's reliability concerning trade deals and other matters has been questioned by US partners, leading to equity rallies and a minor rebound in the dollar.
- Analysts have presented mixed evidence of reallocations from US assets, with differing opinions on whether there will be a definitive shift away from US dominance in finance and business.
- Jens Nordvig, Exante Data's founder, believes that a "structural shift in asset allocations" is underway, as investors hunt for alternative reserve currencies, potentially reducing their exposure to the US dollar.
- Despite the decrease in US dollar holdings in global foreign exchange reserves, some argue that any long-term departure from the US will be temporary due to the sheer size and liquidity of US markets and economy.
