Traders are rapidly divesting from US assets, reminiscent of trends last seen in the 1980s. Rising recession risks, driven by stringent tariffs, have prompted a global downgrade of US stocks, with their valuations falling relative to global equities by the most on record. Even bitcoin has decoupled from US tech stocks partly because it is not tied to American assets.
While tariffs on imports and reduced consumption (in the case of exports) may help cut imports and shrink America’s trade deficit, the downside is that the rest of the world has less incentive to invest in American assets. The potential improvement in the current account remains uncertain, but the decline in favor for US stocks and bonds is occurring now.
Over the past month, the US Dollar Spot Index, which tracks the greenback against major developed market currencies, has dropped more than 5%, as has the S&P 500. Meanwhile, 10-year Treasury yields have risen by over 10 basis points—a combination not seen since September 1981, during the second phase of the US double-dip recession.
— new from Sherwood News