Donald Trump’s presidency started off with high market volatility during the first 100 days. Investors became increasingly anxious about the aggressive tariff policies of the administration and how they might affect global trade. The anxiety of the stock market has made investors diversify out of U.S. assets. Investors are fearing harm to market stability in the long term.
During this time, the S&P 500 declined by almost 8%. And the danger didn’t end here because the U.S. dollar index fell about 9%. While some optimism crept in following a less aggressive tone in trade rhetoric, the initial volatility had a lasting impact on investors globally.
Investor Confidence Begins to Shift
Analysts such as Charles Schwab’s Liz Ann Sonders observed that the uncertainty did “tremendous damage” to investor confidence. Foreign allies also began wondering about the U.S.’s dependability in trade relations. This reticence prompted a wider reconsideration of world investment strategies, with others looking for more secure or more predictable markets away from the U.S.
Even with minor recoveries, there is still reluctance to fully re-enter American markets. Investors are being cautious not to over-allocate their portfolios to U.S. assets.
Indications of Structural Asset Rebalancing
Analysts such as Jens Nordvig of Exante Data have posited that a “structural shift” has been occurring. International investors have increasingly been seeking alternatives to the U.S. dollar, but it still occupies a preeminence as reserve currency. By late 2024, reports the IMF, the dollar portion of world reserves fell from a level of 66% in a decade previously to 57.8%, a figure since updated.
This gradual movement towards “de-dollarization” is a trend that is real although cautious. Central banks and institutional investors are making a slow transition into other currencies, although complete replacement of the dollar’s position appears unlikely in the short term.
Treasury Market Faces Foreign Selling Pressure
A second source of concern for U.S. financial supremacy is the Treasury bond sell-off. Foreign holders of nearly 30% of the $29 trillion U.S. government bond market have been unwinding positions. While evidence of a wholesale exodus is scarce, the trend represents increasing caution.
Goldman Sachs estimated foreign investors have sold roughly $60 billion of U.S. shares since March, with European investors driving much of this pullout. Some analysts believe that part of this rebalancing is a natural function of years of U.S. market outperformance, and not just a function of political risk.
Gold and Overseas Citizenship Gain Appeal
Wealth managers and hedge funds are responding to uncertainty. Companies such as Tolou Capital Management are moving portfolios away from U.S. Treasuries and into gold, reflecting a crisis of confidence in established U.S. safe havens. Citizenship advisory companies are seeing a surge of high-net-worth individuals buying second passports in order to diversify individual risk.
The quest for political and financial stability outside of the U.S. is increasingly becoming a priority for investors worldwide and high net worth individuals alike.
Will U.S. Markets Regain Their Magnetism?
Even with all the upheaval, some forecasters are taking a cautiously optimistic outlook on America’s future leadership in markets. NWI Management’s Tara Hariharan noted that cornerstones of “U.S. exceptionalism”, such as market size, liquidity, and pro-business policies.
In the longer term, structural change and further innovation might enable the U.S. economy to regain its pace and confidence of global investors. But for the time being, Trump’s protectionist policies based on tariffs have undoubtedly shaken confidence and promoted diversification strategies worldwide. All in all, Trump’s government is under huge question and it will be interesting to see how the USA market behaves to the Trumps’ decisions.
