Wall Street went into 2025 with confidence. Analysts were bullish on US equities, the dollar, and artificial intelligence. Inflation was easing, central banks were preparing rate cuts, and Donald Trump’s return to the White House was expected to supercharge American markets with a mix of tax cuts and tough tariffs.
But six months in, almost every major assumption has been blown apart.
The Dollar Shock: From Strength to Slide
At the top of the year, banks like JPMorgan, Morgan Stanley, and SocGen predicted a strong dollar driven by Trump’s pro-growth agenda. Instead, the Bloomberg Dollar Index posted its worst start since 2005, plunging unexpectedly as Trump’s sweeping “Liberation Day” tariffs — rolled out in April — triggered fears of a recession.
Even worse for the US Treasury: the dollar’s weakness eroded returns on government bonds, just as the US was depending on foreign capital to finance its growing debt pile.
“The dollar’s fading connection to interest rates and equities might reflect deeper cracks,” warned JPMorgan strategist Meera Chandan, who now sees another 2% drop by year-end.
The implications are massive — global confidence in the dollar, and US assets broadly, has been shaken.
US Stocks: From Crash to Comeback
At the start of 2025, US equity exposure was at record highs. AI dominance, especially through mega-caps like Nvidia and Microsoft, was expected to drive another tech boom. But that all flipped in Q1.
A surprise came in the form of DeepSeek, a Chinese AI firm that emerged as a real competitor to US giants. Then came the tariffs — sweeping and aggressive. As recession fears grew, nearly $7 trillion was wiped from the Nasdaq 100 between February and April. Fund managers fled. BofA’s March survey showed the largest-ever drop in US stock exposure.
But in late April, Trump did what no one expected: he paused the harshest tariffs. That single move flipped sentiment again. The S&P 500 hit record highs, AI optimism returned, and institutional investors rushed back in.
“They still offer the best earnings story with the fastest growth,” said Marija Veitmane of State Street. “By mid-April, the buying was back.”
The Yen Soars, the Yuan Surprises
One of the few trades Wall Street got right: the Japanese yen.
With the Bank of Japan set to raise rates while others cut, the yen gained nearly 9% against the dollar, driven further by investors rushing to safe havens amid tariff chaos. Some analysts now forecast ¥120 per dollar by year-end.
Meanwhile, China’s yuan defied predictions. Expected to weaken under tariff pressure, it instead rose 1.8% YTD, as a collapsing dollar helped Beijing prop it up — even as China’s own economy remains under strain.
Europe & Emerging Markets Take the Lead
No one saw it coming: European stocks have outperformed the S&P 500 by 16 percentage points in dollar terms — the best relative showing since 2006. The Stoxx 600 surged as Germany launched massive defense spending and Trump demanded Europe take more military responsibility.
Citigroup’s Beata Manthey was among the few to bet on Europe. Most strategists — including at Goldman Sachs — were too cautious.
Emerging markets also made a rare comeback. Led by AI-driven growth in Taiwan, South Korea, and China, EM stocks added $1.8 trillion in value this year, pushing total market cap to $29 trillion — a record. Currency strength and fading US dominance played key roles.
“The geopolitical tensions have not derailed this rally,” said InTouch strategist Bernd Berg.
The New Reality: Uncertainty Is the Only Constant
Trump’s tariffs, rate pressure on the Fed, and erratic trade negotiations have shattered the idea of a stable, rules-based global economy. As the Bank for International Settlements warned in its latest report, the world is entering a “new era of heightened uncertainty and unpredictability.”
For traders and investors, 2025 has become a reminder that political power can override macro models — and that in this cycle, what you don’t expect might matter most.
Markets have adapted fast, but the message is clear: underestimate volatility at your own risk.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
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