Just six months into 2025, the global investment landscape has been upended. Wall Street’s early predictions have faltered amid a mix of global conflicts and policy shocks stemming from President Donald Trump’s administration. The result? A surprising realignment of global asset classes, market winners, and investor behavior.

From the unexpected fall of the US dollar to the historic surge of European equities and the comeback of emerging markets, traders are rapidly rethinking long-held assumptions about risk, growth, and global economic leadership.

The US Dollar: A Flagging Symbol of Strength

Entering 2025, the consensus was clear: Trump’s low-tax, high-tariff strategy would fuel inflation, tighten monetary policy, and buoy the dollar. Instead, the greenback recorded its worst first-half performance since at least 2005, with a Bloomberg currency gauge tumbling and its supremacy increasingly questioned.

April’s sweeping “Liberation Day” tariffs — intended to favor domestic manufacturing — raised fears of a recession and suggested a deliberate push toward a weaker dollar. That gamble risks alienating foreign bond buyers critical to financing America’s ballooning debt.

Now, even bullish firms like JPMorgan are forecasting further weakness, with analysts projecting a 2% additional decline by year-end.

US Equities: A Rollercoaster Ride

The year began with confidence in US stocks, particularly in tech and AI. But that optimism didn’t last.

• $7 trillion in tech market cap vanished from Nasdaq 100 between February and April.
  
• Chinese AI firm DeepSeek rattled US dominance in the sector.
  
• Trump’s tariffs revived recession fears.
  

Still, a policy reversal in late April, including a partial tariff pause, reignited market momentum. The S&P 500 surged to new highs, with institutional investors rushing back. Analysts now say the US equity outlook is improving — but with more volatility than previously expected.

Asian Currencies: Yen and Yuan Defy Expectations

As anticipated, the Japanese yen rallied — gaining nearly 9% YTD — driven by interest rate hikes and a flight to safety during tariff turmoil.

China’s yuan, however, surprised. Despite predictions of depreciation due to US tariffs, the yuan rose 1.8%, aided by PBOC’s stronger reference rates. Still, economists believe the yuan will eventually weaken to support exports amid sluggish domestic growth.

Global Bonds: Short-Term Wins, Long-Term Risks

Short-dated bonds outperformed, as anticipated, benefiting from rate cuts and macro uncertainty. Long-dated bonds, however, suffered due to rising government borrowing and soaring fiscal deficits.

Investment giants like Pimco and BlackRock correctly called the divergence in yields, with demand for short-term Treasuries far outpacing long-duration debt.

Europe Emerges from the Shadows

European stocks, long overlooked, are now outperforming. The Stoxx 600 index has outpaced the S&P 500 by 16 percentage points YTD in dollar terms — the best relative performance since 2006.

Key drivers:

• Germany’s massive defense spending response to Trump’s NATO demands
  
• A stronger euro, now at $1.17
  
• More cautious tariff implementation than initially feared
  

Emerging Markets: Finally, a Breakthrough

After years of underperformance, emerging markets are surging, adding $1.8 trillion in shareholder wealth and hitting a record $29 trillion in market cap.

Why?

• Broad currency strength vs. USD
  
• An AI boom in Taiwan, South Korea, and China
  
• Waning US exceptionalism
  

Yet geopolitical risks persist. The Turkish lira collapsed in March after political unrest. Meanwhile, Ukrainian bonds slumped again after failed peace efforts and a government default.