The first 100 days of the second Trump administration have been a turbulent period for markets, prompting some investors to pull back from American assets, although it's still unclear if the policies have led to a lasting shift away from the country.
The market has seen significant rallies lately fueled in part by trade negotiation optimism, but investors remain concerned about the longevity and strength of any bounce-back in asset prices. Some are diversifying to international assets or making sure they are not overweight U.S. assets as they seek more certainty over policy.
"The question of whether this has caused irreversible damage to the U.S. markets and economic system is the existential one, but we don’t yet have a long-term answer," said Liz Ann Sonders, chief investment strategist, Charles Schwab & Co. "We know that it’s done a tremendous amount of damage and that our partners are questioning whether we’re reliable when it comes to trade or other things."
A recent moderation in rhetoric on trade has caused equities to rally back close to their April 2 level and a small rebound in the dollar. Still, in the near-100 days since Trump's Jan. 20 inauguration, the S&P 500 has fallen about 8% and the dollar index has slid about 9%. April 30 will mark the 100th day of Trump's presidency.
The volatility has come as investors fear that Trump's overhaul of global trade may hurt the U.S. economy, causing a rebalancing.
Criticism of the U.S. Federal Reserve (Fed) Chair Jerome Powell also caused a sharp sell-off as investors worried about Fed independence. Some also fear that there could be deeper damage.
"When you have a brand, you need to behave in a way that respects that brand," Citadel's founder and CEO, Kenneth Griffin, said at a Semafor conference on Wednesday, saying that the administration needs to be careful about potential damage to U.S. Treasuries. White House spokesperson Kush Desai said the Trump administration is committed to protecting the strength and power of the U.S. dollar.
"Trillions in historic investment commitments since President Trump was elected from industry leaders including TSMC, Apple, and Roche demonstrate resounding confidence in the U.S. economy and dollar under this administration,” Desai said.
Strategists have pointed to a mix of evidence for reallocations from U.S. assets, although they differ in whether there will be an actual shift away from U.S. hegemony.
Jens Nordvig, founder of Exante Data, said in a note on Thursday that piecing together a mosaic of information led him to conclude that a "structural shift in asset allocations is in motion," where investors around the world are "searching for alternative reserve currencies."
While Nordvig does not predict that the U.S. dollar will lose its reserve currency status, "it does mean that a long list of different types of investors will be looking to reduce USD exposure if they can find a way to do so."
For evidence of a trend in de-dollarization, investors will be watching for any significant changes in the shares of global FX reserves held in dollars and the dollar's share in global payments, though analysts and investors say it could take years to see conclusive evidence. The share of U.S. dollar holdings in global FX reserves – foreign assets held by various central banks – has fallen to 57.80% in the fourth quarter of 2024, down from 66% 10 years ago, according to International Monetary Fund (IMF) data.
"An acceleration of geopolitical fracturing will, at the margin, persuade some central banks to speed up their diversification from the dollar," said Gary Smith, client portfolio manager at Columbia Threadneedle Investments.
A recent sell-off in the Treasury market, the bedrock of the global financial system, has raised concerns about selling by foreign investors, who hold some 30% of the $29 trillion U.S. government bond market, although analysts say so far there is little evidence.
Oxford Economics said in a research note on Thursday that market moves showed a broader shift out of the U.S. from "investors of all stripes."
Among those changing their strategies is Spencer Hakimian, CEO of Tolou Capital Management, a New York-based macro hedge fund. His fund is increasing its allocation to gold and decreasing its allocation to long-term Treasuries because "we believe a crisis of confidence is now brewing for dollar-denominated safe haven assets."
Evan Russo, CEO of asset management at Lazard, said on Friday he expected that the rest of this year would see portfolio rebalancing away from the U.S.
"Global investing will continue to be a very prominent discussion," Russo said on an earnings call. Ultra high-net-worth individuals are concerned, said Nuri Katz, president of APEX Capital Partners in Antigua, which advises clients on establishing citizenship overseas. He said a growing number of clients "want to diversify their financial assets beyond the U.S., and that number is growing almost daily."
Goldman Sachs portfolio strategy research said in a research note on Thursday that it estimates foreign investors have sold roughly $60 billion of U.S. stocks since the start of March, with European investors driving the selling. A Barclays report had a similar message, saying international investors have been repatriating U.S. assets, but added "there is little evidence that U.S. hegemony has started to reverse for good."
Some selling can be explained by rebalancing following a long period of U.S. outperformance.
"The U.S. dollar was very highly valued for several years until recently, and an argument could be made that it’s just coming back 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, said that valuations of U.S. equities and the dollar were stretched even before the Trump administration's tariffs.
Some also believe any exit from the U.S. will be temporary, as the sheer size and liquidity of U.S. markets and the economy will continue to curb the appeal of alternative investment destinations such as Europe and China.
Tara Hariharan, managing director at global macro hedge fund NWI Management, said that several pillars of so-called "U.S. exceptionalism" remained intact.
"Over time, structural adjustments and business-friendly deregulation and fiscal policy should reinforce the comparative advantages the U.S. enjoys and ensure it remains a magnet for global capital in the coming decades," she said.
