The recent sell-off in financial markets has been anything but typical, prompting growing concerns about a potential exodus of assets from the United States. The aggressive and fluctuating trade policies emanating from Washington D.C. are increasingly seen as a major contributing factor, potentially causing long-term damage to the U.S.’s financial standing.
Since President Trump’s April 2nd tariff announcement, the S&P 500 has plummeted 5.4%, experiencing daily swings reminiscent of infamous market crashes in 1987 and 2008. This sharp decline follows a shaky start to 2025, and the downturn extends beyond equities, encompassing the dollar and Treasury bonds.
Experts are sounding the alarm. BCA Research strategist Marco Papic, appearing on CNBC’s *Squawk Box*, bluntly stated, “The big takeaway…is that there’s a rotation out of the U.S. And obviously that’s become vicious now—with bond yields staying high and the dollar falling, it’s become the story. But that exodus started well before Liberation Day. … U.S. is the bubble. U.S. All of it.” This highlights the gravity of the situation and the growing sentiment of a shift away from US assets.
The turmoil extends to the currency and bond markets, traditionally seen as safe havens due to the U.S.’s historical financial strength. The benchmark 10-year Treasury yield briefly surpassed 4.5% on Friday, a significant jump from 3.99% just a week earlier, driven by falling bond prices. Concurrently, the ICE U.S. Dollar Index hit a three-year low, experiencing particularly sharp declines against safe-haven currencies like the Japanese yen, Swiss franc, and euro. Deutsche Bank strategist George Saravelos described the situation as a “rapid de-dollarization,” emphasizing the combined collapse in the currency and U.S. bond markets.
While some of these market fluctuations might be attributed to mechanical factors—declines in U.S. stocks and bonds impacting the dollar—the sheer scale suggests a deeper underlying shift in investor sentiment. Minneapolis Fed President Neel Kashkari noted the unusual decline in the dollar despite the tariff increases, suggesting a fundamental change in investor preferences. This sentiment is echoed in the bond market, where the mere fear of foreign investors divesting from U.S. Treasuries is enough to trigger significant market volatility, according to Gennadiy Goldberg, head of US rates strategy at TD Securities.
The economic consequences are far-reaching. Companies with substantial foreign sales face potential disruptions, and a growing anti-American sentiment poses a significant risk if the trade tensions persist. BlackRock CEO Larry Fink highlighted the damage to America’s global image, emphasizing the discrimination faced by major U.S. brands abroad. Rising Treasury yields also complicate U.S. government spending and economic growth, as higher yields increase the cost of borrowing, exacerbating concerns about the federal deficit.
Adding to the uncertainty is the looming threat of inflation. While recent readings have been relatively subdued, this doesn’t account for the impact of the April tariff announcements. The University of Michigan consumer survey revealed significant inflation concerns among Americans, linked to the tariffs. This complicates the Federal Reserve’s options, making interest rate cuts less likely while consumer prices remain elevated. The confluence of these factors—declining dollar, rising Treasury yields, inflation fears, and shifting investor sentiment— paints a complex and concerning picture for the U.S. economy.
