Zinger Key Points
- U.S. assets face rare selloff as stocks and Treasuries fall together, shaking global investor confidence.
- Dollar strength fades as Trump’s 104% tariffs on China trigger retaliation and economic uncertainty.
- Markets are messy—but the right setups can still deliver triple-digit gains. Join Matt Maley live this Wednesday at 6 PM ET to see how he’s trading it.
At the start of 2025, exposure to the U.S. dollar and American assets like equities and Treasuries was a staple in global investment portfolios, riding high on the back of a resilient economy and a dominant U.S. exceptionalism narrative.
For years, the global investment narrative leaned heavily on American dominance. Strong tech innovation, high productivity and relatively better demographics helped maintain a performance gap between U.S. equities and their global peers.
That conviction, however, is unraveling just four months later, as escalating trade tensions—spurred by President Donald Trump‘s aggressive tariff push—have dramatically altered the outlook for the world’s largest economy.
The U.S. dollar and American assets, including both stocks and bonds, are experiencing a broad selloff, raising concerns among investors and challenging assumptions about the stability of U.S. markets.
Why Investors Perceive The US Isn't Safe Anymore
After several days of carnage on Wall Street, investor sentiment remains deeply negative, but the market reaction is beginning to signal something more concerning than just an equity selloff.
The U.S. Treasury market, traditionally a safe haven during periods of market stress, is no longer playing its usual role.
Yields on the 10-year U.S. Treasury note spiked by 17 basis points during Wednesday's morning session, reaching 4.45%. That move — occurring in tandem with steep equity losses — is counterintuitive.
Typically, bonds rally and yields fall as investors seek safety when stocks tumble. The SPDR S&P 500 ETF Trust SPY is now teetering on the brink of a bear market, down nearly 20% from its recent peak, yet Treasuries are offering no refuge.
Instead, bond prices are falling sharply. The iShares 20+ Year Treasury Bond ETF TLT has declined 3.5% over the last three trading sessions and slid another 3% in premarket trading on Wednesday.
This marks the worst four-day stretch since 2022, when Treasuries plunged amid the Federal Reserve's rapid-fire rate hikes to combat soaring inflation.
Unlike in 2022, the current bond selloff appears to be driven less by inflation or rate expectations and more by growing concerns about the broader appeal of U.S. assets.
Investors Are Liquidating Everything, Even Risk-Free Treasuries
Worryingly, it suggests that investors are liquidating even high-quality, dollar-denominated holdings to raise cash, as noted by a Citi research report published this week.
“Much of the recent focus has been on the anomalous positive correlation between USD and US stocks,” Bank of America Global Rates and Currencies team wrote in a note Wednesday.
"The correlation shifts are consistent with rising U.S. risk premium, ‘peak U.S. exceptionalism,'" said Bank of America. The note advised watching official data and Treasury auctions to assess the changing nature of foreign demand, particularly from unhedged buyers.
"The backdrop of U.S. exceptionalism in recent years has leaned against FX-hedging U.S. equities from a foreign investor perspective," wrote Goldman Sachs analysts. "In a few short months, those conclusions have flipped."
Goldman's FX strategist Michael Cahill said that if tariffs continue to erode corporate margins and reduce real consumer incomes, the central pillar of a strong dollar may crack. The dollar index is already showing signs of strain after months of bullishness.
“80 days ago in Davos, most common phrase was “American exceptionalism.” You heard everywhere. I would say probably every meeting I went to, everyone is focusing on how to do more in the United States. And obviously that’s been thrown out right now,” said BlackRock CEO Larry Fink during an event at the Economic Club of New York.
Jefferies strategist Chris Woods also believes that the U.S. has likely peaked in terms of its share of global stock market capitalization. He sees limited upside for U.S. equities amid high valuations and slowing growth, and said that emerging market equities could begin to outperform if the dollar weakens further.
According to DataTrek Research, the so-called "American exceptionalism trade" relied on a virtuous cycle: rising stock prices drove capital allocation and underpinned economic policy that reinforced financial markets.
This self-sustaining loop has endured for 15 years, but a prolonged bout of volatility could cause lasting damage.
"A few weeks of turmoil does not necessarily threaten it. A few months of ever-lower stock prices, however, risks permanently damaging investors' confidence in its foundations," DataTrek said.
The sharp selloff in U.S. Treasuries is not indicative of systemic trouble, Treasury Secretary Scott Bessent said Wednesday, calling the move a typical market dislocation driven by leveraged investors unwinding positions — not a sign of deeper instability.
While downplaying domestic risks, Bessent did strike a more hawkish tone on China, suggesting that Beijing could provoke broader global instability if it retaliates against tariffs by weakening its currency.
The U.S. imposed a 104% tariff on Chinese imports, with the impact beginning overnight, while Beijing fired back by raising tariffs on American goods to 84%.
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