Equity markets are riding a rollercoaster of volatility, but what stood out even more this week (other than the unpredictable behaviour of Trump) was the interesting reaction of the U.S. Treasury market and dollar.
Long-term Treasury prices declined, pushing yields higher, even in the face of instability that would traditionally send investors rushing into U.S. government debt. More instructive was the weakened greenback. During previous market downturns, money flowed into U.S. Treasurys and the U.S. dollar rose, but this time capital is moving elsewhere. Yields aren’t attracting buyers. It’s the exact opposite of what we’ve seen in the past. A sign that fixed income markets are pricing in more than just short-term volatility — they’re anticipating a broader paradigm shift. Where there’s smoke, there’s fire.
The move away from U.S. bonds and currency signals a loss of confidence in America’s position as the global financial anchor — no longer the safe-haven asset they once were.
We’re witnessing a repatriation of capital. Money is going home. This is the biggest dislocation in market behavior in our lifetime. The days of benefitting from an enormous deficit and financing it for cheap are over. The Pax Americana empire has given way to a nation-state mindset. That doesn’t mean there are no opportunities in the States. But the global order is changing (or has changed — we’ve been saying this for years; we were just early last year!). See our OUTLOOK for more on the New World Order. We also recommend watching Principles for Dealing with the Changing World Order by Ray Dalio — a video we have shared widely with clients in recent years.
So, where do we go from here? The transition from a unipolar to a multipolar world order has been underway for some time; people are only now starting to talk about it. Volatility will continue to be high. Capital may not be protected in the short term, but cash flow is there. Remember: there is opportunity in times of disruption! We would stay away from Consumer Discretionary and significant capex.
Bottom Line
As always, we are monitoring developments closely, but we're not going to rush into anything. In periods of disruption, staying disciplined, diversified, and focused on dividend growth is essential.
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