The Journal. - Taking Stock of the ‘Sell America’ Trade

Episode Date: April 24, 2025

Something strange happened in the US financial system earlier this week: the stock market, the bond market, and the value of the dollar all slumped. This volatility andrecent threats to fire Fed chief Jerome Powell are unnerving foreign investors, who are flocking to a new phenomenon called the Sell America trade. WSJ’s Chelsey Dulaney explains what Sell America means for decades of American finance primacy. Jessica Mendoza hosts. Further Listening: -Trump’s Tariffs Force a New Era in Global Trade  -Trump Allies Draft Plans to Rein in the Fed   Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

There's a new term that's been making the rounds in the business world this week. The sell America trade caused whiplash on Wall Street. The quote sell America trade. Sell America. Sell America trade continuing to gain momentum. Have you heard the term sell America? We're familiar with the sell America story. Sell it all.

Sell the bonds, sell the socks, sell the currency. I think it's less about selling it. It's more a question about stop buying it. And if people stop buying, effectively it has the same effect, doesn't it? The sell America trade refers to a new market phenomenon where investors overseas are pulling back from U.S. assets. The business I'm overseeing is managing funds which invest in government bonds and other sorts of bonds for investors located worldwide.

Mark Dowding has quite the title. He's the Chief Investment Officer of Blue Bay Fixed Income at RBC Global Asset Management. Mark is based in London and he manages over $130 billion in assets. Within all of the assets that we manage, the bulk of the assets, you would say, are actually allocated to U.S. dollar securities. And why is that? Well, I guess, of course, it goes without saying that the U.S. is the world's largest economy.

It's the economic superpower. Obviously, the U.S. has got the world's largest and deepest, most sophisticated financial markets. And sometimes we use the abbreviation TINA, which stands for there is no alternative. Investors end up investing in the U.S. almost because there's not enough choice to go shopping in elsewhere in the world. For foreign investors, the U.S. stock market and the U.S. bond market have long been considered great places to invest. But just a few months into Trump's second term, those markets have seen dramatic swings, brought on by threats of a trade war and government infighting.

Some of the policy announcements that we have witnessed have led investors to question whether the U.S. economy will continue to grow as strongly as it has been growing in the past. And that's actually led us to adjust our view and actually turn more away from being one-time dollar bulls towards being dollar bears. For Mark and many investors around the world, the uncertainty in the US financial system is starting to feel like an inflection point. All of a sudden, there's a bit of a rethinking

about how much can you rely on the U.S. if you're located overseas? And all of a sudden, the U.S. is looking like a less attractive destination for your capital. It's no longer looking as safe as it once was. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, April 24th. Coming up on the show, why foreign investors are selling America. Before there was sell America,

there was buy America. You might know it as the U.S. exceptionalism trade. Buy America became a trade that was embraced all over the world. That's been the trade for basically over a decade. So everybody was sort of pouring in to these U.S. bets. Our colleague Chelsea Delaney reports on markets. Investors have just been pouring in from abroad to American stocks. They've been buying American bonds.

Part of that is the fact that the dollar, the U.S. dollar, is the world's reserve currency. It means that central banks around the world, they want to hold dollars. So quick econ 101. Stocks are shares of public companies. Treasury bonds are essentially a loan to the U.S. government from an investor. So quick econ 101. Stocks are shares of public companies. Treasury bonds are essentially a loan to the U.S. government from an investor, and that loan is in dollars. Since the end of World War II, treasury bonds have been considered some of the safest bets

in the world, because investors could count on the U.S. government to not default on its loans. This relative stability in both markets continued for decades. Coming out of the 2008 financial crisis, the U.S. economy recovered a lot faster than the rest of the world. Europe has been stuck in this stagnation. Japan has been battling deflation. China has been really struggling for several years now. And so the U.S. economy was just growing much faster than anybody else's. That growth spurred foreign investors to invest in all sorts of assets in the U.S.

The stock market thrived, and it was given even more of a boost recently by the rise of artificial intelligence. America has this very fast-growing tech industry. It's been the leader in a lot of sort of high-growing industries, and so that's attracted all sorts of investors. How much of a stronghold has the US had on the world economy recently?

Is that a quantifiable number? So foreigners own now about almost $19 trillion worth of US equities. And if you were to go back to 2011, that's only $19 trillion worth of U.S. equities. And if you were to go back to 2011, that's only $4 trillion. Coming into this year, U.S. stocks had grown to make up more than 70% of the MSCI world, one of the most popular global stock market indexes. And as of February, foreign investors and governments owned almost $9 trillion in U.S. treasuries. And so just stepping back, big picture, the way that this idea of American exceptionalism

and the way that it's sort of taken hold of global markets, what does that mean for the U.S.? What's sort of the upshot? The upshot of American exceptionalism for the U.S. is that it's led to a lot of money coming into America. And for the U.S. government, that means that it's been cheaper a lot of money coming into America. And for the US government, that means that it's been cheaper to borrow money. And the US has ever growing budget and trade deficit.

So that has helped fill that gap, this demand for American assets, the demand from abroad for American stocks has been a huge reason why, you know, US markets have grown as fast as they have and why U.S. stocks have a much higher valuation than the rest of the world. For years, that was the status quo.

Investors saw the American stock market as a reliable place to get rich. And after Trump's election in November, U.S. markets looked even stronger. We saw the American exceptionals in trade turbocharged. People called it the Trump trade. People thought that Trump was going to cut taxes, he was going to deregulate, and the American economy was going to do even better.

And so there was this big rally in stocks, the dollar went up. But soon after Trump took office, he started doing something he didn't do in his first term, aggressively implementing steep tariffs. That started to worry investors. It became clear and clear to investors that he might mean it this time, that he might actually do it.

He might impose these really steep tariffs on global trading partners. And that led to a lot of volatility in the first quarter of the year. And then we had Liberation Day. April 2nd, 2025 will forever be remembered as the day American industry was reborn. The day American...

The tariffs that they introduced were much, much deeper than investors had expected. And that's when you start to really see the sell-off take hold. — The announcement could affect trillions of dollars of U.S. imports. — That's when we start to see markets getting a little funky. — The market's reaction, clear and jarring. The S&P 500 plunging 10% in two days. Since Trump's inauguration, the S&P 500 is down roughly 10%.

That's the index's worst performance in the first 94 days of any presidential term on record. Then, just this past Monday, something surprising happened. The stock market, the bond market, and the value of the U.S. dollar were all down. It's very unusual. Yeah, it's definitely unusual. So typically when you see stocks selling off, you would see Treasuries and the dollar rising. And then after Liberation Day, we didn't see that.

We started to see all three of these things selling at once. And that was really a sign that investors were losing confidence in American assets and American policy. Lost confidence can have real consequences. Less investment in the U.S. bond market makes it more expensive for the government to borrow. And a weak dollar means U.S. companies pay more for imports,

and Americans have less buying power on trips abroad. What is the Trump administration saying about all of these market issues? The Trump administration has downplayed how serious this is. And I think Trump himself has said, like, this can be painful, but, you know, in the end, it'll be worth it. I don't want anything to go down. But sometimes you have to take medicine to fix something. Is there anything else that's been worrying investors, besides the administration's trade

policy? For investors, global investors, US investors, threatening to fire the Fed chair is, I think, a bit of a red line. The pressure that Trump has been putting on Jerome Powell has definitely added another layer to investors' anxiety about the fact that, you know, we're potentially dealing with a less predictable America. — That's coming up next. Hey, wouldn't it be great if life came with remote control? You know, you could hit pause when you needed to, or hit rewind, like that time you knocked

down that wasps nest. Uh oh. Well, life doesn't always give you time to change the outcome, but pre-diabetes does. With early diagnosis and a few healthy changes, you can stop pre-diabetes before it leads to type 2 diabetes. To learn your risk, take the one-minute test today at DoIHavePreDiabetes.org, brought to you by the Ad Council and its pre-diabetes awareness partners. Thank you and good afternoon. It's great to be back in Chicago.

Last week, Federal Reserve Chair Jerome Powell delivered an address on the economic outlook of the United States. He was talking in a kind of low key way, as Powell is known to do, about the economic outlook. Tariffs are highly likely to generate at least a temporary rise in inflation. And one of the things he said was that there is a strong likelihood that consumers are going to face higher prices. And that seemed to really set Trump off. And that seemed to really set Trump off. The next day, Trump wrote on Truth Social about Powell, quote, termination cannot come fast enough.

There's been some name calling. He calls him a major loser. He's been calling him Mr. Too Late, as in too late to cut interest rates. Trump appointed Powell a Republican to chair the Federal Reserve back in 2018. And since then, Trump has been very vocal about wanting Powell to cut interest rates. The Federal Reserve makes decisions about rate cuts based on economic realities, independent of the president.

Powell's likely very worried about inflation and the fact that higher prices on U.S. imports could drive up inflation. As a central banker, that likely means you would need to hold interest rates higher. Trump, on the other hand, wants interest rates to be lower because that could help boost the economy. Some senior officials, according to Wall Street Journal reporting, took Trump's statements about firing Powell seriously, although it's unclear if there's a legal way to do that. White House lawyers reportedly looked into options for removing him.

All of this happened very quickly. Trump threatened to fire Powell a week ago, on Thursday. By Monday, stocks, bonds, and the dollar had all slumped. The next day, Tuesday, a reporter asked Trump in the Oval Office if he still had intentions to fire Powell. — None whatsoever. Never did. The press runs away with things. Now I have no intention of firing him.

— A White House spokesperson declined to comment on Trump's private conversations. Both the Treasury and Commerce Departments did not respond to requests for comment. How are investors feeling about Trump's kind of shifting rhetoric around Powell? For investors, even just mentioning it, even just talking about this is something that just reinforces this idea that we're in a new era, we're in a new world where, you know, the U.S. is not playing by the same rules It's I mean the Trump administration both through the tariff policy and through these threats to to fire Powell

it's it's shown that it's willing to break with these norms of These conventions. Yeah, these these like long these long-standing conventions that have Been one of the reasons why people want to invest in the U.S. So I think he's, yeah, all of these attacks have really shaken investors. Trump seemed to have felt the pain of the downturn. The same day he walked back his comments on Powell, he told reporters that he was considering lowering tariffs on China. 145% is very high, and it won't be that high. It's not going to be that high. And that's music to investors' ears.

Both U.S. stock futures and the dollar rallied on Wednesday in response. Overall, investors are happy to see the administration walking back some of the more dramatic threats. The Trump administration's willingness to pivot is something that they want to see. But confidence is certainly still going to be shaken. And investors are still going to be very wary about what comes next in this rollercoaster. A rollercoaster, or in other words, volatility, something very wary about what comes next in this roller coaster. A roller coaster, or in other words, volatility, something investors definitely don't like. April is shaping up to be the most volatile month

for markets since the pandemic crash in 2020. And it's still unclear what the coming months will look like in terms of the administration's approach to trade and the central bank. like in terms of the administration's approach to trade and the central bank. And so for many foreign investors, none of this looks good. What's looking better is the sell America trade. Do you think that sell America is a flash in the pan or a real paradigm shift?

There's definitely a seed that has been sown and it probably will take a longer period of time to rebuild confidence once it's been shaken. I think we probably will see some stabilization in the market, but investors are making long-term plans to sell America and a lot of investors were really concerned that their investments had become so concentrated in the U.S, but the performance had been so good. And so you couldn't really stop because you would be underperforming and it would be bad for your clients or your pensioners, and nobody wants to underperform.

So even before this, people were worried about being so concentrated in the US. And this has just shown people why you don't want to do that. And so I don't think it's a flash in the pan. I think And this has just shown people why you don't want to do that. And so I don't think it's a flash in the pan. I think it has started a broader conversation, especially among foreign investors who don't have to invest in the U.S. They have a lot of other options. So I think it has started a conversation about investing more elsewhere. So if global investors are selling America, what are they buying?

In London, Mark Dowding, the investment executive, says he's now more intrigued by markets in Europe and Japan. So purely looking at things from a currency perspective, I think it's the yen that I have at the top of my list. But I think there are other global currencies that also look relatively attractive. I mean, I'd rather own European stocks denominated in euros or Japanese stocks denominated in yen at the moment. Those overseas markets, which maybe have been underloved

and overlooked for a period, are now likely to see a bit more attention. We're also looking at a world where there's more of a sense in which there's more of a home bias going forward, more of a sense of let's keep more of our money at home. And of course, if those countries do keep their money more at home, it means that the US is going to benefit less

from overseas investors supporting their markets. Time will tell, we'll have to see. That's all for today, Thursday, April 24th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Nick Timuros, Gunjan Banerjee, Greg Ip, Alistair MacDonald, and Jack Pitcher. Thanks for listening. See you tomorrow.