[LONDON] Six months since Wall Street laid out its predictions for 2025, world conflicts and US President Donald Trump’s turbulent policy making have shattered assumptions about the strength and pre-eminence of US assets and the economy, leaving market favourites in tatters and conjuring unexpected winners.
As foreseen: swings in sovereign bond markets have been sharp, the Japanese yen rallied, and a comeback for emerging markets is finally materialising.
At the same time, few envisaged the US dollar – the emblem of US exceptionalism – would suffer losses this deep, or predicted the S&P 500’s giddying plunge followed by breakneck rebound. Europe’s stock market, meanwhile, has morphed from backwater into investor must-have.
A “very significant evolution” has occurred in markets in the past six months, said Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management. “Any themes that you were playing for at the start of the year that were about medium-term trends have been tested.”
Here’s a look into a group of assets and how they performed so far this year:
US dollar
Trump’s low-tax, high-tariff policies were expected to stoke inflation and reduce the chances of interest-rate cuts from the Federal Reserve – factors seen propelling the US dollar’s supremacy well into 2025. Instead, a Bloomberg gauge of the currency posted its worst start to a year since at least 2005, and its hegemony is being debated ever more fiercely.
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The “Liberation Day” tariffs at the start of April were so sweeping and punitive that they fuelled fears of a US recession and fanned speculation that Trump was seeking to buoy domestic manufacturing by engineering a weaker US dollar. That’s a dangerous game: the US depends on foreign investors to buy its mountainous debt pile, and a weaker greenback erodes returns on those bonds.
Societe Generale, Morgan Stanley and JPMorgan Chase had not expected a turn in the US dollar’s fortunes in the first half and only predicted gradual slippage later in the year. Now, a JPMorgan team led by Meera Chandan says the greenback’s faltering link to rates and equities could be a sign of structural weaknesses. They predict a gauge of the US currency’s strength will drop another 2 per cent by year-end.
US stocks
Investors entered the year with a record high allocation to US stocks, emboldened by a robust economy and bets around artificial intelligence (AI). That optimism was all but abandoned within months, first as Chinese startup DeepSeek challenged the US’s dominance in the AI race, and later on fears that Trump’s tariffs would tip the economy into a recession.
Nearly US$7 trillion of market capitalisation was wiped from the technology-heavy Nasdaq 100 Index between a February peak and an April low. A Bank of America fund manager survey showed the biggest-ever drop in exposure to US stocks in March. By early April, US equity bulls were in short supply.
But Trump’s decision later that month to pause some of the highest tariffs in a century proved pivotal. The S&P 500 hit a record high as data show the economy chugging along and with technology heavyweights in vogue again. After months of ructions and tempered forecasts, Wall Street strategists are taking an optimistic tone on US stocks for the second half.
“I am as bullish on US stocks as ever,” said Marija Veitmane, a senior multi-asset strategist at State Street Global Markets. “They still offer the best earnings story with the fastest growth and most predictability. Institutional investors restarted buying in mid-April and have not looked back since.”
Asian currencies
With the Bank of Japan prepared to raise interest rates at a time when peers were cutting, traders started 2025 confident they’d see a rally in the yen. JPMorgan Asset Management and Brandywine Global Investment Management were among those proved right by the currency’s almost 9 per cent surge against the US dollar to around 145 this year.
The yen got a further boost in April from surging demand for haven assets amid the confusion around Trump’s tariffs. Jupiter Asset Management’s Mark Nash, who positioned for the rally in January, forecasts the currency will climb to 120 per US dollar by year-end, an advance of around 17 per cent from current levels.
In China, meanwhile, US trade tariffs were expected to hurt the yuan, but so far the US dollar’s own sharp sell-off has upended the prediction.
In December, Nomura called for the yuan to weaken to 7.6 per US dollar in offshore trading by May, and JPMorgan saw a rate of 7.5 in the second quarter. Instead, the yuan has surged 1.8 per cent this year, hitting 7.1565 per US dollar on Thursday (Jun 26) – the highest level in seven months – as the People’s Bank of China strengthened the daily reference rate.
Still, strategists say the yuan will eventually have to fall, given strains in the Chinese economy that may require monetary and fiscal easing in the second half of the year to lift growth.
“China will want to utilise the yuan as a release valve, as well as to maintain competitiveness given the ongoing pressure on the economy and the fact that exports remain the main engine of growth,” Barclays Bank strategists Mitul Kotecha and Lemon Zhang wrote in a Jun 24 note. They see the yuan weakening to 7.20 per US dollar by the end of the year, and to 7.25 by March 2026.
Global bonds
Amid the turbulence, many investors were grateful for one trade that “saved their bacon”, according to Jared Noering, global head of fixed income trading at NatWest Markets.
Short-dated government bonds were expected to perform well, boosted by central bank interest-rate cuts as inflation eased further. In contrast, long-dated bonds were predicted to come under pressure as governments took on increasing levels of debt to plug deepening fiscal deficits and ramped up public spending.
Wagers structured around this divergence have largely played out around the globe, including in the US, where markets remain on edge over the administration’s tax and spending plans. Measures of the so-called term premium in longer-dated US Treasuries have soared in an indication buyers are demanding higher compensation for rampant borrowing.
Pimco and Allspring Global Investments correctly predicted the divergence in short- and longer-term yields in global bond markets. BlackRock Investment Institute was also correct to underweight long-term Treasuries.
European stocks
It was hard to find fans of European equities at the start of the year, let alone investors betting they would outshine their US peers.
Six months on, fears about a sluggish economy and the threat of tariffs have been offset by Germany’s plans to unleash hundreds of billions of euros in defence spending after Trump demanded Europe foots its own military bill instead of relying on the martial heft of the US.
As at Jun 27, the benchmark Stoxx 600 index had trounced the S&P 500 by 16 percentage points in US dollar terms, the best relative performance since 2006. The euro has surged to US$1.17, bucking widespread forecasts for parity with the US dollar in early 2025.
Beata Manthey, Citigroup’s head of European and global equity strategy, was among the rare voices to back European stocks late last year. Targets at JPMorgan and Goldman Sachs proved too cautious. Goldman’s chief global equity strategist, Peter Oppenheimer, said much has changed: “Very aggressive tariffs are not likely to be fully implemented.”
Emerging-market comeback
Every year since 2017, emerging-market equities have lagged US stocks.
In 2025, a procession of money managers, with Morgan Stanley among the most vocal, were convinced it was going to be different. And so far, the jinx appears to have been broken. A boom in AI companies from Taiwan, South Korea and China has helped the equity index. But the overall investment case for emerging markets is underpinned by broad currency strength against the greenback and the perception that the period of US exceptionalism is waning.
Emerging markets have added US$1.8 trillion to shareholder wealth in 2025, reaching a record market capitalisation of US$29 trillion. Bernd Berg, a strategist at InTouch Capital Markets, expects those inflows to continue thanks to benign inflation and decent growth rates. “The geopolitical tensions have not derailed this rally,” Berg said.
In individual developing markets, Turkey’s lira took a hit in March, tumbling to a record low in the space of half an hour, after President Recep Tayyip Erdogan detained his main political rival.
That spooked investors who’d borrowed funds in countries where interest rates were low and ploughed the cash into high-yielding lira-denominated assets. They feared the political shock could eventually herald changes in the country’s market-friendly economic policy and high central-bank interest rates. While the broader fears have not materialised, investors are wary, with Pimco among those trimming exposure to Turkish bonds.
Meanwhile, the failure of Trump’s push for peace between Russia and Ukraine has seen the price of Ukrainian bonds slump. Once a favourite investor bet on a ceasefire, Ukrainian warrants, which have interest payments linked to economic growth, have tumbled since the government defaulted on a payment. BLOOMBERG
