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Wall Street’s “American exceptional” trade has been shattered in recent weeks as Donald Trump’s drop out of tariffs and uncertainty about economic outlook and geopolitics has fueled the sale of unusually long and deep twins of the US dollar and stock.
Greenback has lost 4% against six fellow baskets so far this year, but the Blue Tip S&P 500 has fallen almost 4%.
According to a study by investment bank Goldman Sachs, these types of episodes have only happened a few times in the last 25 years, so this big, sustained fall of Wall Street stock and currency is rare. This dropout shows that in recent years the bet that the US economy will outperform if it triggers a cry of US financial assets at the expense of other major markets.
“The growing doubts over the recent weeks of US exceptionalism sustainability since the early 1970s have sparked one of the revisions to the US stock market,” Goldman Sachs told a client this week, adding, “While stock market corrections are historically less common, especially when the stock sells rapidly, the stock is especially when the stock retaliates.”
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The recent conflict over both US stocks and the dollar has arisen as Trump’s escalating trade war has shaken global financial markets and sparked concerns about the trajectory of the world’s biggest economy. The Federal Reserve on Wednesday lifted its inflation outlook, citing tariffs on a significant portion of the downgrade.
Until this year, Wall Street stocks dominated the global market. The US economy is supported by expectations that it will continue to grow at a faster pace than its rivals. MSCI’s US equity index rose 54% between 2023 and 2024, but according to FactSet data, index providers from globally developed countries except the US rose 17% on the dollar terms.
The stocks rose even higher shortly after Trump’s election victory last November, but the dollar jumped to a gamble that promotes growth, but tariffs proved to be more measured than the presidential election threatened.
But these bets have been unraveling rapidly since Trump took office in January, with the president launching sharp tariffs on imports from partners in large corporations, including Mexico, Canada and China, threatening more and asking Wall Street banks how good American assets are.
“US exceptionalism – determining the theme of macro trade for this cycle – will decline to begin the year and drag the (dollar) low,” the JPMorgan currency strategist added this week, “it has been “exposed (in the dollar) for the first time in four years.”
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In his reasons for pessimism about the dollar, JP Morgan strategists emphasized “uncertain tariff delivery” and “softening in US activities that are sharper than expected” and pointing to “a junction between German Europe and Europe and geopolitics.”
So far, MSCI World Index, excluding the US, has grown by nearly 9%, while index providers’ US gauges have fallen by nearly 4%.
Global asset managers are becoming more negative about US stocks this year, increasing the debate about the future of American exceptionalism.
Scott Chan, chief investment officer for the $353 million retirement plan for California State Teacher, said at a recent investment committee meeting that “an astonishing amount of executive orders” from Trump caused “a tremendous amount of uncertainty in the market.” He added: “The potential risks here are unprecedented. They’re changing the world.”
Other strategists noted that investors flow into international stocks as evidence of positive changes in portfolios beyond the US coast.
“We are committed to providing a range of financial services and business opportunities,” said Bob Michele, global bond head at JPMorgan Asset Management. “The broader markets say it appears that dollar exceptionalism has reached its peak.”
Still, economists and analysts stressed that the US economic future remains uncertain and does not die based on the possibility of a long-term slowdown.
This year, cash is flooding the financial market, and with fresh signals of heaven status still attributed to dollar assets. But the majority of these influxes are poured into short-term government bonds rather than longer-dated Treasury Ministry. What analysts said highlights the lack of belief in the direction of US growth.
Eric Winograd, Chief Economist at Alliancebernstein, said the viability of American exceptionalism was “the market absolutely questionable,” but said it was “too early” to say that this distinctive reputation was “end.”
“I think trade policy in particular is pushing us towards America, which is relatively fewer than other countries,” he added. He said concerns about growth up to now were driven more by emotional research than hard data. “Now we have to look at the facts, we have to look at the evidence, and that will take time,” he said.
Still, Winograd added, “The magnitude of exceptionalism you might expect has probably reduced a bit.”
Data visualization with Eva Xiao. Additional Reports by Sun Yu
