Donald Trump’s policies shatter Wall Street’s ‘US exceptionalism’ trade | Stocks and dollar fall in tandem as tariffs dent outlook for American economy

> Wall Street’s “American exceptionalism” trade has been shattered in recent weeks as the fall out from Donald Trump’s tariffs and uncertainty over the economic outlook and geopolitics have fuelled an unusually prolonged and deep twin sell-off in the US dollar and equities.

> The greenback has lost 4 per cent against a basket of six peers so far this year, while the blue-chip S&P 500 has tumbled almost 4 per cent.

> Such large and persistent falls in Wall Street stocks and the currency are unusual, with these types of episodes occurring only a handful of times over the past 25 years, according to research by investment bank Goldman Sachs. The declines mark a reversal from recent years, when bets that America’s economy would outperform peers triggered a clamour for US financial assets at the expense of other major markets.

> “Growing doubts in recent weeks on the sustainability of US exceptionalism sparked one of the fastest US equity market corrections since the early 1970s,” Goldman Sachs told clients this week, adding that “while equity market corrections are historically not that uncommon, a coincident dollar sell-off is — especially when equities rapidly reprice”.

> The recent ructions for both US stocks and the dollar come as Trump’s escalating trade war has shaken global financial markets and sparked concerns about the trajectory of the world’s biggest economy. The Federal Reserve on Wednesday slashed its growth forecast and lifted its inflation outlook, citing tariffs for a significant portion of the downgrade.

> Until this year, Wall Street stocks had dominated global markets — buoyed by expectations that the US economy would continue to grow at a faster pace than its rivals. MSCI’s index of US equities soared 54 per cent from 2023 to 2024, while the index provider’s gauge of global developed market stocks excluding the US rose 17 per cent in dollar terms, according to FactSet data.

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