People living in the United States and using mainly dollars in their personal lives may not fully appreciate the combination of shocks that have unnerved investors elsewhere in the world.
The first half of the year was a game changer for investors in Europe, Japan and many other countries for whom the instability of the U.S. financial markets was a seismic event. After years of U.S. outperformance, stocks, bonds and the dollar all experienced painful reversals that were magnified for those holding euros, yen and other currencies.
In fact, calculations by the global financial services company MSCI show that for people using Japanese yen or euros, the combined volatility of the dollar and the U.S. stock market in the first half of 2025 made U.S. equities even riskier, in some respects, than traditionally risky emerging markets. That category includes an extraordinarily diverse range of countries including India, Taiwan, South Korea, Brazil and Mexico, as well as Saudi Arabia and China.
The U.S. stock market has largely rebounded since late April, and that may be masking an unpleasant reality. For global investors, the lagging performance and heightened volatility of U.S. markets this year represent a shift. For most of the last few decades, U.S. financial markets were unquestionably the premier destination, both in terms of relatively high investment returns and low risk.
The advantages of the United States remain formidable, and the recent tumult may recede into the background, but because many current problems appear to stem from the policies of the Trump administration, there is ample reason for concern.
Triple Red
The shudders in U.S. financial markets after President Trump’s tariff announcements on April 2 amounted to what Ashley Lester, the chief research officer of MSCI, called a rare “triple-red moment,” a simultaneous and significant sell-off in stocks, Treasury bonds and the U.S. dollar. That was a rare event, which last happened in 2002, he wrote in an online note. Most episodes of such triple market declines have been brief — with a big exception being the prolonged market turmoil of the 1970s.
In that period, he said, “oil shocks, Vietnam-era deficit spending and a Fed that lacked credibility led to the collapse of the Bretton-Woods system” of fixed exchange rates pegged to the dollar, which was then convertible to gold. The breakdown of that system caused chaos in financial markets, but the United States re-emerged as the central, indispensable player in global finance.
In a video chat from London, Mr. Lester said it wasn’t clear yet whether what we’ve experienced is merely a short-term “tremor” or the start of another sustained change in global markets. “What we’ve already seen is arresting and worth studying,” he said.
The markets have reacted more calmly to the latest tariff announcements from Mr. Trump, but that may be because of the spreading belief in the TACO meme — “Trump Always Chickens Out” — meaning that he won’t ultimately impose tariff rates as high as he has threatened.
Nonetheless, the effective U.S. tariff rate is already the highest it has been since the Great Depression, according to the Budget Lab at Yale, and many countries have refrained from imposing equivalent tariffs on the United States in the hope of reaching a compromise. The perils of this global trade war could still become much worse.
The Trump administration has been intensifying its criticism and pressure on the Federal Reserve and its chair, Jerome H. Powell, whose independence is widely viewed by economists and investors as crucial for the health of the markets and the overall economy.
The markets won’t shrug off such problems forever.
At a minimum, with shifting projections of investment risk and the furor of the early days of the Trump administration, international investors need to evaluate whether it makes sense to shift some money to countries other than the United States. And U.S. investors with a strong home-country bias may want to consider whether they have diversified sufficiently outside the United States.
A Sampling of Returns
As I pointed out recently, the U.S. stock and bond markets have turned in solid performances for U.S. investors so far this year. What’s impressive about that is that the markets rebounded despite continual shocks, uncertainty and periodic sharp price declines, often induced by the disruptive policies of the Trump administration. Even so, in terms of market performance, America this year is far from first. Stock and bond markets elsewhere in the world have been outstanding, and the falling U.S. dollar magnified the discrepancies in returns for U.S. and international investors.
When you look at this with a historical perspective, you will see a startling shift in the performance of stocks in the United States versus those in other developed markets and in many emerging markets.
From 2009 through 2024, investing in the United States was generally a no-brainer from the standpoint of comparative global stock performance. But this year has been different. Consider these annualized returns, calculated by MSCI using its own major indexes and using U.S. dollars:
U.S. stocks, from 2009 to 2024: 14.6 percent. In the first half of 2025: 5.8 percent.
Developed market stocks, excluding the United States, 2009 to 2024: 7.6 percent. In the first half of 2025: 19.7 percent.
Emerging market equities, 2009 to 2024: 7.4 percent. In the first half of 2025: 14.9 percent.
Clearly, while U.S. markets were better for many years, U.S. investors would have been better off so far in 2025 if they owned big dollops of international stocks.
Because the dollar fell an average of 10 percent against other developed-market currencies and 7 percent against those in emerging markets, the advantages of investing outside the United States have been even more compelling for people living elsewhere and using other currencies. Note how the weakening of the dollar against the euro — and, to a lesser extent, against the yen — changed the picture for investors in these different currencies in the first half of this year. These annualized returns, too, were calculated by MSCI, using the firm’s indexes.
First, for investors in U.S. “Mega Cap” stocks, including tech giants like Nvidia, Apple, Alphabet and Meta:
In U.S. dollars: 4.7 percent.
In yen: -3.8 percent.
In euros: -7.7 percent.
And finally, consider investments in a broad index of emerging markets excluding China, over the first half of the year, using three different currencies:
In U.S. dollars, 14.9 percent.
In Japanese yen, 5.6 percent.
In euros, 1.4 percent.
There are similar results in bond and commodity markets, with the weakening dollar often aiding U.S. investors with holdings abroad and hurting people using other currencies to hold dollar-denominated assets.
Clearly, an international approach was a good strategy for many people. Generally speaking, diversified holdings in emerging markets and developed markets outside the United States were superior to investments in U.S. assets in the first half of this year.
The critical question is whether that will be true in the future. No one knows the answer, but it’s being asked urgently by global investors.
Risky Places
I’ve talked so far about raw market performance. There’s also the issue of volatility — the degree of price fluctuations, both up and down — and when you include this dimension of risk in your thinking, the United States has looked worse lately than emerging market countries.
That, in fact, is the finding of a proprietary model that MSCI uses to forecast the risk of investing in a variety of markets. Especially for people holding foreign currencies, who must deal with oscillations in the dollar, the volatility of U.S. public markets is making them riskier than those of the average international market, including those labeled emerging markets.
Comparing the United States with emerging markets may seen strange. In economic terms, of course, the United States is usually thought of as the paragon of an advanced, developed market country — as far on the development scale from being an emerging market as you can get. The dollar and U.S. Treasury bonds remain central parts of the world financial system.
But in political terms, U.S. institutions are being tested this year. The country is changing rapidly, and financial markets are reacting. Comparisons with other developed markets, and with emerging markets, are unavoidable. The numbers are unforgiving.
Perhaps this will be remembered as an odd and troubling moment in the long history of U.S. exceptionalism. Advances in fields like artificial intelligence may supercharge U.S. markets, and the traditional strengths of the U.S. economy and political system may be sufficient to withstand this difficult time.
But it’s possible that, in critical ways for investors, we are already living in a new world. It makes sense to diversify, even if the United States returns unequivocally to its old status as the indispensable country with the most reliable economy and markets in the modern world.