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Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
The writer is president and chief investment strategist at Yardeni Research
When the US stock market reached new records last year, led by the magnificent group of seven technological companies, the financial media and many investors praised “American exceptionalism”. Now, not so much.
Instead, widespread concern is that the United States is declining as a preeminent economic and military power. In this scenario, exceptionalism was fueled by excessively high deficits of the federal government which led to a debt / GDP ratio greater than 120%, a quadruple increase since 1980. Net interest of interest in all this debt follows at an annual rate of 1 TT.
America depends more than ever on foreign investors and central banks to finance the government's deficit and refinance its matured debt. However, in the first 100 days of his second mandate in the White House, President Donald Trump suddenly turned the United States to policies widely considered to be protectionist and isolating. Consequently, foreign investors reconcile their commitment to its capital markets. In addition, they wonder if the bond market of the Treasury and the dollar lose their status as paradise in a volatile world.
Thus, the decline of the dollar this year was considered a confirmation that Trump's “global disorder” will harm America's pre -eminence. It can also be a warning sign of an American debt crisis if foreigners lose their confidence in the country.
All this is a very depressing story. It can also be an absurdly alarmist vision which is simply an excessive reaction to the recent correction of the S&P 500. The sale was certainly attributable to Trump's pricing disorders. But, now with hindsight, everyone agrees that the actions assessments were stretched at the beginning of this year, especially for the magnificent seven. In other words, the stock market was sailing for bruising. Many recent pain felt by technology giants came while investors have questioned their high spending on artificial intelligence infrastructure.
The anxiety quickly mounted when the American yield of the bonds of the Treasury at 10 years went from 4.00 to 4.50% in a few days at the beginning of April after Trump introduced his pricing regime on the day of the liberation “because he nicknamed it. The increase in bond yields frightened the Trump administration, which led the president to postpone tariff increases.
At the same time as the prices of the decreased equity and bonds, the dollar index widely followed (DXY) dropped rapidly by almost 10%. America was no longer exceptional, according to the condemned to do. Again, the financial markets can be volatile without confirming that the end is close to American exceptionalism. Recent events can simply be explained and without involving disastrous consequences. Consider the following:
• Since the beginning of last year, Dxy has been strongly correlated with the price of the magnificent ETF of Seven Seven. The data of the US Treasury show that foreign investors have piled up in American actions at a record rate last year. When Open-Source Deepseek R1 was launched on January 20 of this year, investors lost confidence in companies that had spent a lot for IA infrastructure, including MAG-7. Dxy has dropped while global investors have sold them and have allocated more of their portfolios to Chinese and European actions.
• Dxy is a strange duck. It is not a weighted dollar index depending on the trade, as largely supposes. It is based on a basket of six major foreign currencies – but their weights do not change. It is mainly motivated by the euro, which has a weight of 57.6%.
• On a weekly basis, the Federal Reserve Board publishes daily measures of a weighted dollar index according to trade. Dxy is generally strongly correlated with the Fed dollar index compared to advanced foreign economies. But on an annual basis, Dxy is down 8.3%, while the wide FED index is down 4.8%.
All this suggests that it is at least partly a story in dollar-European, because American actions are sold to buy European actions.
It is true that the US government has issued a record amount of debt. This makes the largest, the most liquid and (always) US Treasury market, the safest capital market in the world. The dollar must remain the pre -eminent reserve currency. Global investors could soon start buying the seven magnificent now that Alphabet, Meta and Microsoft have declared major results for the first quarter of 2025. If this should stimulate Dxy.
