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I'm Stephen Carroll and this is Here's Why, where we take one new story and explain it in just a few minutes with our experts here at Bloomberg. The ongoing changes create the opening for a global euro moment.
Even if you're a dollar based investor, you should be thinking about increasing your allocations to none dollar investments. You know, we got up to one fifteen in euro dollar and then put all the way back down towards one eleven.
Like that kind of thing is going to keep happening. There is a declining trend of the US exceptionalism, and particularly when we talk to global investors, the willingness to diversify on a global basis. I think it's getting higher these days. If you blink, you're risk missing a market melt. A lot has changed in the world in the first few months of twenty twenty five. There's been a whirlwind of announcements from the Trump White House. Europe is racing
to rearm Germany's loosening its purse strings. The pace of change has set investors on edge. Many are now questioning what were considered established market principles, ones that had a track record of making money until now. Here's why twenty twenty five has seen popular investment strategies blown apart. Our Market's Live managing editor, Christine Aquino, joins me now for more, Christine, good to talk to you. Can we start with some examples?
What were the ideas or principles that investors used to rely on and I've been thinking differently about since the start of this year.
Yeah, absolutely, Steven. I mean, we have a lot of these that are long held principles in markets that have really started to be challenged, especially in the beginning of this year, right. So one of them is definitely this idea that the US dollar and treasuries are full proof
havens during times of stress. There's also the notion that there's no way to go for the Magnificent seven but up because you know, even in times of inflationary environments, they tend to be more resilient because they have a lot of cash flow, they have enough growth in the companies that are in that group. And then, of course the sixty forty investment strategy. Now that's been questioned even prior to the start of this year, but I think even more so since the beginning of twenty twenty.
Five, the sixty to forty portfolio sixty percent invested in stocks, forty percent invested in bond. Something that we hear a lot about are all of these changes because of Donald Trump.
He was definitely a big catalyst ever since President Donald Trump took office, and it's particularly because of some of the known aspects of his policy approach. Right, we knew even before he took office that he was going to take a look at the US's trade deals with the rest of the world and attempt to redraw a lot of that policy. And then of course a lot of
focus on immigration as well. And you know, that combination had a lot of people really bracing for a renewal of inflation in twenty twenty five.
So what are the other factors at play then outside of the United States.
Well, Stephen, you know, because the US has enjoyed this sense of exceptionalism, I would say over the past decade. The result of that is that a lot of valuations outside of the US have really become cheaper, you know, and now that we're seeing US markets being on a little bit more shaky ground, that cheaper valuation outside of the country has really become a bigger draw for investors, right, because they're cheaper and now they're looking like more of
a viable alternative to US assets. And outside of markets, we've also seen a number of leadership changes in a lot of other countries. Twenty twenty four was a big gear for global elections, and you know, a lot of leadership changes means that for countries, their diplomatic relationships are bound to change. At the focal point of that, of course, is President Donald Trump and how he's really shifting the US's diplomatic relationships with some of its more traditional, closer allies.
And also it's farther flunk counterparts.
So money managers have to adapt their strategies all the time, right, But how does this moment compared to other periods in the past where we've seen big fundamental shifts.
I think what we're really hearing from money managers is the fact that they're having to contend with a higher than usual level of volatility, and what that really means is that their reaction time has to be faster, it
has to be more tactical. You know, we're not necessarily seeing a lot of money managers making big calls and making long term proclamations because it's really difficult in this current environment to do that, and so now they have to be quick twitched, they have to be really reactive, which is quite a different environment, especially if you're a money manager who's used to, you know, making big investment decisions once a year, maybe changing up your portfolio every
but not really having to mix it up all that much. But yeah, now this is a really different environment. And I think the other thing too, that we spoke to earlier is the idea that there are a lot of these long held quote unquote truths in markets that are now really being challenged, and so a lot of money managers really just can't rely on those anymore.
Yeah, even that expression quick twitch makes me nervous when I hear it. What about the lasting effect of these changes. Can we say, for example, that the era of US exceptionalism is over.
Well, I don't think anyone's quite ready to proclaim that just yet, but you do definitely see enough of a diversification shift potentially that some of these previously held notions in markets become a more water down version of their previous selves. Right, even though the US will always have the advantage of Tina which is there is no alternative because a lot of its markets, both in stocks and
fixed income, deepest, biggest, broadest markets in the world. But we might be seeing enough of a shift in portfolio flows that even though that's still true to some extent, it probably won't be to the same degree as we have seen in years past.
Now, Christine, you are Queen of Markets at Bloomberg, Are there any unusual market trends that you're keeping an eye on in the coming months.
Well, I'm always a macro person at heart, and so I'm really really interested in the shift in the dollar's role in how investors are viewing it, because we have seen it shift from a full proof, trusted haven during times of previous episodes of turmoil. I'm talking about the global financial crisis and even during the COVID years, and now it's really struggled to rally and it almost has
become the face of the Cell America trade. And that's really interesting that investors have been so quick to shift their their views and a dollar, and I'm curious to see whether it regains back a lot of that status that it enjoyed before, or is it now fundamentally changed. The other thing that I'm really looking at with interest. Is this idea that macro factors taking a backseat to politics in terms of driving markets? Is that the new
world order? Now? You know, are we going to have to become in addition to economic armchair experts, are we going to have to become policy and politics experts as well in this sort of market And you know, just a question of for instance, federal reserve policy playing second fiddle to whatever the Trump administration's policies are. So something that I'd like to keep an eye on. For sure, I'm going.
To be dusting off our politics books to read up on some of the precedents of the past. Thanks to our Markets Live managing editor Christina Quino. For more explanations like this from our team of three thousand journalists and analysts around the world, go to Bloomberg dot com slash explainers. I'm Stephen Carol. This is Here's why. I'll be back next week with more. Thanks for listening.
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