In this episode of Markets in Focus

Questions about the U.S. dollar’s future as the world’s reserve currency aren’t new. And, yes, some central banks have slowly begun moving to dollar alternatives over the past several decades.

Now the questions are back. Announced U.S. tariffs have turbocharged volatility, cast a shadow over economic growth, seen the dollar sell off, and spurred discussion about whether U.S. stocks can continue to surge ahead of their global counterparts.

In this episode, Cougar Global Investment Portfolio Manager Jason Richey, CFA, and Antonina Tarassiouk, Fixed Income Analyst with Reams Asset Management, explore whether the dollar and the very idea of U.S. exceptionalism are secure — or are on the brink.

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Transcript

Matt Orton:
Welcome back everyone. We have a great episode lined up for you with expert guests, as always, who are going to help dive into the swirling debate around U.S. exceptionalism.

We've seen some pretty meaningful pivots from the White House over the past few weeks, though, to be fair, I should say instead that they're listening to the market and adjusting policy accordingly. But either way, it's definitely encouraging with the direction that we're going and I think that's reflected in the action that we've seen over the past couple of weeks or so. No matter what though, post-Liberation Day volatility is still here, though it is normalizing and there has been some damage done, particularly to the U.S. dollar, which is going to be part of this U.S. exceptionalism debate that we're going to be having.

I think Trump's first one hundred days in office were the worst performance for the dollar since Nixon, or potentially even worse than during the Nixon administration when we abandoned the gold standard. And that leads to a number of legitimate questions about the notion of the dollar as a reserve currency, the whole idea of whether the U.S. will continue to be exceptional, and what that really means in the first place.

This is Markets in Focus from Raymond James Investment Management. I'm your host, Matt Orton, and I invite you to join me and my colleagues as we discuss the latest trends and developments driving the markets. Visit us at MarketsInFocusPodcast.com for additional episodes and insights.

I think what I want to focus in on with our time today is really discussing whether there are legs to this idea of the end of U.S. exceptionalism or whether there's just a lot of hyperbole tied to the story. So to help us with this debate and really dive into the details, the experts that we have lined up for you today. Number one, we've got Antonina Tarassiouk. She is an investment analyst with Reams Asset Management, tremendous expertise in FX and commodity markets with a focus on fixed income. I believe she also speaks Russian and Spanish and has worked for the Central Bank of Mexico in the past.

So really, really excited to bring her into the discussion. And we also have Jason Richey, who is a portfolio manager with Raymond James investment management, and he has a deep experience — a decade plus in asset allocation and global markets. So this is going to be a really, really good discussion given where we are.

I've got to give you the date because things can change rapidly. So we are recording this episode at 9:00am Eastern time on May 8th, 2025. So we'll see how long the shelf life is of this debate. But with that, let's just dive in.

And obviously we had the FOMC yesterday on May 7th, and it was pretty much a non-event. I would say the White House ultimately is what's driving the markets overall. But nonetheless, I would be really curious just to kind of set the stage of where we are with respect to interest rate policy that trickles into all other parts of the market and asset classes. Any thoughts or initial reaction with respect to what we heard from the Fed? Anything in there that you all think is potentially challenging, or is it just more of the same of what we've been expecting? And maybe Antonina, we’ll start with you on that?

Antonina Tarassiouk:
Absolutely. I think it's exactly what we were expecting. I think the Fed's hands are completely tied. We have, on one hand, we're expecting pressure on inflation coming on from tariffs. On the other hand, we're expecting a slowdown. So I can see a scenario where by the end of this year where we have inflation at 4% and we have growth at 0%, what does the Fed do? They can't do anything. They have to hike rates on one hand to fight inflation and they have to cut rates on the other to support the economy.

They're here, they're on pause until further notice, until we hear the actual policies coming out of the White House. Until they know the impact on the economy, there is very little that this Federal Reserve can do at the moment.

Matt Orton:
Yeah, it's a great point. I feel like I tried to count the number of times Powell used the word “uncertainty” during the press conference. I lost track. It was too much. So, I mean, clearly to what you're saying, no one knows where we're going and they're kind of stuck between a rock and a hard place.

And Jason, as you kind of look at global assets as well, the U.S. is stuck, but the ECB is cutting rates. You're seeing other global central banks in more of a cutting cycle. How do you then think about the U.S. monetary policy and U.S. assets with respect to the rest of the world?

Jason Richey:
Yeah, I think you guys have nailed it. The one thing from I would say from yesterday's press conference was, that was interesting to me, was the fact that Chair Powell did not address the most relevant topic, which is what the Fed is modeling in terms of the impact of tariffs. He just didn't touch those types of questions.

And to be fair, nobody wants to touch those types of questions. There's just no way that you can have any clarity on taxes or on tariffs at this point. So he's going to wait it out for sure, and I think the FOMC is going to wait it out.

Now, from an allocation perspective, I would say it's very hard to grasp just how much the U.S. has dominated equity market performance since basically the financial crisis. If you go back to ’08 — and I have two of my favorite performance data points when I'm looking at U.S. versus global — and if you go back and you look at cumulative returns since the beginning of 2009, it's something like 750% in cumulative returns for the S&P 500, and it's compared to something like 250% cumulatively for investing in the MSCI ACWI ex-U.S. index.

So that's a 500% difference between the two, which is just amazing to even consider or fathom.

So the other way — since it's hard to fathom what 500% means — the other way that I like to look at it is through annualized returns, which anybody can do. You can go and you can pull up the public fact sheets for each of the representative ETFs, and what you'd see is around a 12.5% annual return for the U.S. for the last 10 years, and you can compare that to about a 5% annual return for the ACWI ex-U.S. for the last 10 years.

So for most allocators, what they've probably done at this point, is they've just thrown in the towel on their international exposures, if for no other reason than they probably want to stop getting client questions about it. It's just been such an unloved asset class. And that's another reason — again, besides some of this policy worry, that I know we're going to get into — why it makes sense to see some sort of snapback in international performance.

I don't think that we'll see the reverse, where international or global ex-U.S. stocks go on that same type of 15-year relative run, but I think it could be a lot closer. Maybe even keep up with the U.S. I think that's a perfectly reasonable assumption for asset allocators.

Matt Orton:
Yeah, I agree. I feel like there's definitely a case that can be made for international equities to perform well, and it doesn't mean the U.S. has to not perform well as well. So maybe we'll kind of build on that.

You mentioned some of the challenges we have, and kind of one of the biggest, I think, most shocking changes that we had was post Liberation Day. April's pretty amazing when you actually look at it. You had Liberation Day, the biggest drawdown in the S&P 500 since, I think, 2020. You've had massive swings. The market was down 11%, basically finished flat for the month, but you also had significant volatility in yields, also largely reversed. But what hasn't reversed is the falling dollar. We've seen the dollar fall off a cliff and that's remained the case. And I think that's where we can really kick off the discussion.

And I think one of the key questions that comes out of that, maybe number one, is what's driving the selloff in the overall dollar? And then number two are questions around the U.S. dollar's global reserve status. Is that being questioned right now? Is that leading to the declines? Antonina, maybe you can help contextualize that for us.

Antonina Tarassiouk:
Yeah, and I'll start with the role of the U.S. dollar as a reserve currency. I think we have to distinguish the U.S. dollar as a reserve currency and just volatility of its strengthening and weakening, right? There are different things, all of us here talking right now about it, and probably our listeners don't remember any other currency that has had that status in our lifetime — which is crazy to think of, but it actually was not always the case. And I think that's important to understand.

So, basically you're asking me if the U.S. dollar is too big to fail. And in GFC language, I don't think it is. I don't think it is. I don't think the U.S. dollar is too big to fail. Do I think this is what we're seeing right now? I don't think so, but to put it into perspective, before the U.S. dollar, the British pound was actually the reserve currency. And that lasted from 1815 to 1940.

So, over a century. A long time. And the reason it was the reserve currency is because they had naval and military power at the moment. They had economical dominance, based on international trade, which was done through ships, most of the time.

At that time, they had the global standard that they adopted before anyone else, and they had that trust in the London banking system. They had that credible financial system. And so the pound was used for reserves, but also to settle international trade.

The reason I went into history, a little bit, is because I could have said the same things about the dollar today. And the British pound is no longer the reserve currency. Right after World War II, the U.K. economy was weak. They had a large debt, they lost land, in terms of colonies, and the U.K. was just not stable. And that trust that you talked about, as well, moved from the U.K. to the United States.

We all know what happened. The Bretton Woods agreement after World War II, they decided to talk about global order and financial stability and decided that the U.S. dollar should be the reserve currency, which is what we know until today.

So to end my thought here, the U.S. dollar is not too big to fail. I think the dollar can absolutely lose its reserve status. However, this is not what we're seeing right now. I think this is just normal volatility. In terms of — if you want me to jump in — in terms of why do I think this is happening, I think we need to understand the relationship between trade and capital inflows, which are actually, from where I stand, two sides of the same coin. We have a very strong dollar.

We've had an overvalued currency for a long time now. Why? Because there are a lot of reasons.

There are a lot of uses of the dollar for international trade, for funding as a reserve currency, et cetera. When you have a strong dollar, when you have an overvalued currency, you will have winners and losers.

The natural losers are exporters. Why? Because you're competing with countries that have a weaker currency. The natural winners are importers. What does that mean, it’s that you are importing cheaper goods, you're buying cheaper goods, and you're sending those dollars to the global economy. So basically, what I'm trying to say is: Trade and capital flows are two sides of the same, of the same coin, they go hand in hand. And so when you are trying to adjust trade, what happens is that you adjust those inflows into dollars as well.

Matt Orton:
No, it makes sense in that the capital flow is so important too. I mean, one of the perplexing things about — just the way I would argue that some of the administration are looking at tariffs and being so myopically focused on trade balances, you neglect the capital flow part of the equation.

I mean, you look at the trade deficit with a country like China, in terms of hard goods. A hundred, 200+ billion dollars or so. And then you look at the amount of revenues that our companies are generating, just in the S&P 500, in a company, like China, it's in the trillions of dollars. And a lot of that money finds its way back into U.S., into U.S. markets because again, that trade balance has to be balanced by capital flows at some point.

But I digress a little bit in terms of where we're going. And so I want to come back to some of this, Antonina, but first I want to add in to the context because of the strength of the dollar.

Jason, maybe you can also then frame how that has impacted global asset allocations over the past two decades.

Jason Richey:
Yeah, so I mentioned how we know the S&P 500 has outperformed ACWI ex-U.S., it's outperformed international. Emerging markets actually look much worse. As I mentioned, allocators have probably thrown in the towel. It's a very, sort of, crowded trade at this point.

So, I gave you the numbers. I think it makes a lot of sense as to why investors are positioned this way.

Now, if you look at another point — that I like looking at — is if you look at the MSCI ACWI Index, so the ACWI index, not ex-U.S., but ACWI that includes the U.S. All of the top 10 names are U.S. companies, and the U.S. is now north of 60% of the market cap of the ACWI index. So look, the U.S. has been a momentum play for some time, to some extent. In my opinion, it becomes a bit more of a self-fulfilling prophecy as well, because you have more investors benchmark themselves, and so you have more investors end up with more U.S. exposure.

So it's going to end up taking a very sort of sound, strong argument as to why the U.S. would substantially underperform these other countries economically. But again, we have a lot of policy uncertainty, and my only pushback on Antonina about it — not about the U.S. dollar, not necessarily being a reserve currency and too big to fail — is that we've been hearing this forever. It's often goldbugs.

We've heard it for a couple of decades. You usually hear the goldbugs who are worried about the financial system crashing in general; which again, seems farfetched, but it has certainly picked up.

Matt Orton:
Just a little.

Jason Richey:
Yeah, it has certainly picked up a bit since the Ukraine war and since the invasion of Ukraine. And the logic is very simply that China is watching. So that's the only pushback. And we still have something like 90% of cross-border transactions are in U.S. dollars. That hasn't changed a whole lot. So, if the reserve currency status changes, it would take a very long time — as my guess, absent some other sort of financial innovation like Bitcoin.

Matt Orton:
Yeah, I think that's a good point, Jason. And I always chuckle when I see more and more of these goldbug commercials on CNBC, you know, early in the morning or later in the evening. You know, people, it's taking advantage of the situation that we're in. But at the end of the day, these things just don't happen overnight.

I think it alludes to Antonina's point, even if you believe that the U.S. dollar’s dominance can be questioned, and it can fail — to use her language — it's going to happen over a longer period of time.

And another question for you, Antonina, along those lines is: Given some of those gradual changes, maybe you can also contextualize it? I think people worry along with the dollar, and maybe the dollar weakness, whether that's led by selling of Treasuries by other foreign countries, but it's not like China hasn't been selling Treasuries for the past 15 years or so.

So, maybe you can add just a little bit of context in terms of how those flows also impact the dollar, and maybe what you notice, from data, has actually changed as a result of Liberation Day.

Antonina Tarassiouk:
No, absolutely, and I agree with both of you. I think the market should be absolutely aware that there is a structural selling of U.S. Treasuries going on, but it's very slow and it takes time.

To put some numbers on it, central bank reserves, in dollars, are at its largest — it's the largest allocation at the moment — at 58%. That same number in the 2000s was 73%. So is there de-dollarization happening? Absolutely. We went from 73% to 58%. It also has taken 25 years to do so.

So we know that China and Japan are buying gold. I mean, no one is surprised by that. We know that they're diversifying into Euros and other G-10 currencies. We know that they're accumulating other commodities. We know all of this. It's just a very slow process. There are liquidity constraints, especially if we're talking about commodities. There are liquidity constraints, and it takes time.

So, to your point that this is not the first time, it's not the last time, that the reserve status of the U.S. dollar is questioned. To your point, I started my career in 2006, and since I can remember, this has been the question.

I started in 2006, and then we had the GFC, and of course there was a loss in trust in financial institutions. And people were talking about, “Is this the end of the dollar?” Again, to your point with Ukraine: Russia, in 2022, when sanctions were announced and assets in U.S. dollars were frozen, not only of oligarchs, but mainly the central Bank of Russia.

I mean, other central banks were definitely listening, and trying to take note. “What do we do? We don't want this to happen to us.”

In 2023, we had the BRICs get together and discuss the creation of a common currency. That put the dollar into question, and where we are today. With expectations of, probably, weaker growth in the United States. Some questions about the Federal Reserve’s independence. All of this is creating this discussion again.

Again, this is from where I'm standing: U.S. dollar stands as the reserve currency. This is just normal volatility in markets adjusting to information that we're seeing. But yes, I'll end my thought there.

Matt Orton:
That's all helpful. And I guess, to add in the Fed along with that — even though the dollar has declined, if the Federal Reserve is also holding interest rates steady while you've got the BOE cutting, you've got the ECB cutting. I mean, BOJ has got, it's on its own island, in terms of where their economy is, but that also provides a little bit of support to the dollar.

Antonina Tarassiouk:
Yes. I mean interest rates are an important part of it, absolutely.

But we also have the Central Bank of Brazil say yesterday that they're on the hiking trajectory. We have all sorts. We have pauses, we have cuts, and we have hiking. No, interest rates are absolutely part of the story.

The thing that makes us so special, though, and used to make it even more special, is that it was also a safe haven. And I know this is not how it's behaving today. But it's the “dollar smile.” It's not only interest rates.

The U.S. dollar used to appreciate also when everything else was going down, but this is not what we are seeing today. And I think this is what is concerning to the market, because it's not behaving like we would expect it to. And that's why the conversation about the reserve status is coming into question.

Matt Orton:
Absolutely. And Jason, since I know you look across asset classes, too: Antonina mentioned gold, which has just been on a massive tear up until we got a little bit of good news on the trade front. What are your thoughts there? Do you think there's still legs to gold? Is gold something that we should be thinking about as an allocation in portfolios, perhaps to hedge some of this fear around de-dollarization?

Jason Richey:
Yeah, gold. Gold is fascinating, because you can find any reason you want to buy gold and it just depends on where you stand. So you can buy it as an inflation hedge, you can buy it as a deflation hedge, you can buy it as a geopolitical hedge. I find that if you like gold, you sort of end up finding a reason — any reason — to buy. And it seems like any environment gold exists in is a rationale to buy, right?

So, from a, what I find interesting, from just a portfolio construction point of view, is it depends on what kind of strategy you're running. But as a hedge, if you look in any real bear market, ’01, ‘08, ’20, ’22 — you can go back farther in time, it's got a long history — If you use gold, you end up lowering portfolio volatility. Which means that, kind of like insurance, you don't want to hold gold for a number of years. And it's so painful to hold gold for 10 or 12 years.

But then in periods like the last couple, where we have all these questions about the reserve status, geopolitics and everything else, you'll see gold go on these exponential type of runs. And it’s not usually, the relative performance is not usually 3% or 4%. It's like, tens of percent, as we've seen the case for the past couple of years.

Those are the periods you want to hold on to gold.

Look, everybody: I always get nervous when everybody is on the gold bandwagon, which it seems like what everybody is now. And when you start hearing $4,000, and $5,000, and all these sort of crazy high calls, it makes me nervous. And I don't like the fact that, again, we're doing this on May 8th. We had a couple of days where gold was up $200 or $250, it was 5% in two days. So I don't like those days. But generally, I think gold is trying to tell you that there's something wrong.

So I think you have to own gold in some amount, small amount, a few percentage points. It makes a lot of sense to hold onto it. Do I think it's going to go touch $4,000 and $5,000? I don't think it's going to have the type of move that it's had — the 40% — in the past 12 months or so.

Matt Orton:
Right. But at least some of the move, to Atonina’s point, is also backed by central bank activity.

But I agree, I like the way you said it. It's telling you something's wrong in the market to get those sorts of moves.

So, if we fast forward now, into really digging into, I guess the bull/bear case for this concept of U.S. exceptionalism. Perhaps first, we can think about, we'll look at Europe, for example. Europe has been a big outperformer, the euro has been an outperformer as well, relative to the USD. Swiss franc has been a great place in terms of a haven from a lot of the volatility. Antonina, what are your thoughts with respect to Europe and European asset classes broadly, relative to the U.S. and what do you think, going forward, with respect to divergences in fiscal dynamics, central banks, on how that might impact performance?

Antonina Tarassiouk:
A loaded question there, but let's start with: I think the U.S. exceptionalism that you mentioned is definitely part of the story. So let me start there. I think, if you ask several people to define what U.S. exceptionalism is, they will come up with a different list, because a lot of things make the U.S. exceptional. But let me try to just name two. One is the global influence, I think it's so important. So economic dominance is part of that. Military power is another.

And the second is innovation, right? U.S. has been the frontrunner for sectors like tech and science. It is at the core of the United States. Of course, there are other things, like highly developed financial markets and consumer driven economy, and we can go on and on about what makes the U.S. exceptional, but I'll focus on those two. So what we have seen here to date — and I'll get to Europe in a second — but it goes hand in hand again with the cracks in that U.S. exceptionalism. And I don't think it was just one thing that happened, and all of a sudden the U.S. is not exceptional anymore.

I think it was a list of things. So I'll name three there: DeepSeek at the beginning of the year. That told us that technology is available not only in the U.S., but abroad as well. And it is available at a fraction of the cost. That, of course, put into question the valuations of big tech, causing a correction in that sector. Two: I think there is a clear shift in the relationship of the United States with Europe. And I think we can all see it. I'll name two things that happened there. J.D. Vance went to breakup with Europe, literally read a speech. And it wasn't a pleasant breakup, “It's not you, it's me.” It was kind of vice versa, “It's not the U.S., it's definitely you, and let me read you a list of things that you've been doing wrong.”

Matt Orton:
Yeah, that went over well.

Antonina Tarassiouk:
And then the second thing was of course the Zelenskyy meeting, which, I think, it was very clear that Trump was sending one message to Europe in particular, and it’s “You are having a war in your backyard, and I'm not responsible for financing, and I'm not responsible for sending money for that war.”

The last thing I'll say is: the White House policies. Just in general, we know that there's been a lack of clear communication, just in general, increasing the uncertainty around those. But what has been clear, and Trump has said it himself, is there's going to be pain. That is the message that he's been sending, that our economy is going to be detoxing. So all of those three things: DeepSeek, the divergence — or the relationship with Europe changing — a shift in that relationship, and then White House policies, I think, have continued to crack that U.S. exceptionalism.

So, where are you going to invest money?

You're going to invest in an economy that is going to possibly go through pain, and it's going to go through detox, or are you going to invest in Europe? Which, Europe, like I said, took note from what the White House is doing. Took note from the message of Trump and J.D. Vance. And they created, Germany took steps, they understood that they need to invest in their own economy. So they came up with fiscal stimulus focused on defense. That means that Germany is no longer going to import those aircraft from the United States. They're going to manufacture them locally, they're going to put those dollars — or euros I should say — to use. And we have to put this into perspective: Germany has been fiscally conservative since the 1990. It is a long time. So this has been a huge shift in their fiscal policy, and we're going to see it in growth in the coming years.

On top of that, if you add the possibility of a ceasefire of Russia–Ukraine in Europe, you are seeing the positives that are going to come from that economy.

So again, where are you going to invest?

Are you going to invest an economy that's going to go through detox, or all the positives that Europe brings to the table right now? So of course that caused a divergence in terms of rates, in terms of equities, and of course in terms of currency. You see the euro is — I believe I looked today — 9% up, year to date. It's a huge move for the euro as well, but it has to do, and goes hand in hand with, those cracks in the U.S. exceptionalism.

Matt Orton:
Yeah, certainly makes travel more expensive, too, on the U.S. consumer who's been used to parity for a little while. In a more serious followup: I guess a question for you, then, as well as what about expectations versus reality, right? Because Europe's been the perpetual land of disappointment, right? They always disappoint. Growth has disappointed. Earnings growth has been abysmal for a long time. We're coming from a low base, and I think what we're seeing is very, very encouraging. But you look at Germany, I think just earlier this week or late last week, Scholz has less of a majority than he thought, so they're going to have to put together a coalition party. That maybe slows what happens with respect to relaxing that fiscal brake that they have.

It's going to take time, I guess, is my point. So what's priced into the markets in your opinion right now, and how much wiggle room is there for Europe to actually deliver some sort of tangible progress in order to support the moves that we've had this year?

Antonina Tarassiouk:
Well, I'll say two things. One is that when Trump says something, we have to question, “Is this going to happen, or not?” When Germany tells me something — and I don't know many Germans, but most of the time they go through, they follow through with what they promised. So I can tell you this much: If they committed that money and to put it to work, they will do it. But number two, I'll say that what is important is also the starting point. Valuations have been extreme in the United States, and that is also obviously part of the U.S. exceptionalism story that we're talking about. But basically, at the beginning of the year, everyone and their mother — and I'm not talking about just the United States, I'm talking about internationally — was long U.S. assets. I think we can all attest to that. And why? Because U.S. assets tend to go up. It’s like what you just said, two years in a row with over 20% gains in the S&P.

We have a U.S. dollar that has been on an upswing since 2014, which is obviously a part of the reason why foreign investors are not hedging their exposure in U.S. assets. We have growth, to your point, above expectations in the United States. But I think this is a small caveat here, which is very important: Part of that growth in the United States has a lot to do with fiscal stimulus after COVID. Other countries did fiscal stimulus as well, but not nearly in the same magnitude of the United States.

What that means is that all of those dollars were put to use and the economy here has been put on steroids, basically, relative to everyone else. So we have extreme growth. We have inflation under control with the Fed, trusting in the fed to get inflation down. So the U.S. dollar started this year completely overvalued with extreme crowded positioning that has been obviously very prone to correction given the starting level. And I think that could apply to U.S. equities as well. And any U.S. asset that we really talk about. I think that correction is going, but I think it has space to continue because guess what? U.S. dollar continues to be overvalued. It definitely has more space to go.

Matt Orton:
And let's build on that. I know Jason mentioned before, so if you see delivery, if you see growth pick up and these trends continue — to your point earlier, Jason — U.S. assets peak well north of 60% from a global allocation, what happens to Europe? Even if you just see a 2% or 3% move, let alone a 5% move, which doesn't seem that big if, say, you get some real money. Pension funds in Europe or other parts of the world starting to move from the U.S. and ever so slightly increasing their allocations. How much of an impact does that have on the durability, or I guess, the room to run for this trade?

Jason Richey:
A percent of — the U.S., as a percent of the MSCI ACWI Index market cap, is something like 63.5%. So I think you're spot on with saying 65 as a sort of an equity allocation. 5% doesn't feel like a lot, but you're absolutely right. That would be a very sizable move for these institutional type of investors.

And it's also probably not unreasonable, right?

Again, I would say, depending on where we stand six months from now, in policy and tariffs in particular. And in general, I would say these types of flows, that's the type of stuff that would start to move the needle. It provides the tailwind, it provides the potential for sustained international outperformance. But I would say, even 2% or 3%, it's probably not all of this hypothetical amount would go directly into the U.S. Or directly into international, from the U.S., I should say.

You'll probably see some other alternatives. We mentioned gold as one, we mentioned central banks. So I think that explains at least a little bit of gold's move. But still, I think the broader point is absolutely spot on. Because even if you have a percent or two of flows move back into European companies, or Asian companies, that will help enhance the performance of international stocks overall.

Matt Orton:
Yeah, all good points. So let's do a bull case on this, too.

U.S. macro data is pretty good. Hard data has not, I guess, caught down to soft data. Maybe that's still coming, Powell certainly was reticent to say so. And I guess I'm the perma-bull on this panel, as well. and I am fairly optimistic about what I see in the market and economy and from talking to company management teams. But if the U.S. data stays in a good place, or even if it just marginally slows — which I think is expected by most people — can that continue this kind of U.S. exceptionalism trade, and does that derail, perhaps, the gains to other parts of the market? Maybe, Jason, I'll start with you on that. And then we'll get Antonina's thoughts.

Jason Richey:
Yeah, yeah. So again, “the U.S. is a dying economic dinosaur,” if you will. We hear all this sort of talk constantly, at least for four months in 2025. If we flip the argument around, I would say this is where the bulls — the U.S. bulls — would look at the economic scoreboard and pretty much drop the mic, right?

You have the dynamism of the U.S. economy. We have very flexible, deep capital markets. We have a deep pool of labor market talent. You could make an immigration argument; that's a separate discussion.

Europe did just beat the U.S. in terms of GDP growth last quarter. Nothing to write home about, still very small amounts. But I would say, over the longer term, it's hard to see how European GDP growth could more sustainably beat the U.S. for, again, a longer period of time.

So, then, from an asset allocation point of view, I think the discussion becomes, “Alright, great, yes, the U.S. is expensive. We know that. We think the U.S. is slowing, but doesn't that just mean that the rest of the world slows down too?”

I think that's tended to be the historical pattern. We usually see markets move down in tandem when things get tough. Again, 10 or 20 years from now, if you want to somehow make an argument that if we continue to — we meaning the U.S. — if we continue to turn our backs on globalization, maybe those patterns of correlation change somewhat. Maybe a U.S.-led economic downturn. If you saw one, Europe would be less exposed, but I just don't think that's the case at the moment.

So, again, for me it all adds up to a base case of being invested in the U.S. as your core. U.S. has got the tech companies, it has the largest tech companies, but it also has, again, the depth of financial markets to ultimately drive the AI race.

Matt Orton:
Yeah, I think that all makes sense. And I guess one additional question for you to build on that, Antonina: Going back to this idea of reserve status — at least where we stand today — is there another market outside of the dollar that has the depth, the liquidity that the U.S. dollar has to potentially be the reserve currency?

Antonina Tarassiouk:
In short, no. But let me say more to that. The U.S. is the reserve currency for a reason, right? Because we use it very widely. Let me put some numbers on it. In, for international trade, 80% of global trade is settled in dollars.

What does that mean? It means when Japan buys oil from Saudi Arabia, they're going to pay for it in dollars. Even though the U.S. dollar is obviously not the local currency in Japan, and it's not the local currency in Saudi Arabia, funding happens in dollars. So an entity in Europe wants to lend money to a company in Brazil, that's going to happen in dollars.

Again, none of those countries use the dollars as their local currency. Reserves, we already talked a lot about that, 58% of all global reserves are in U.S. dollars. And last, but not least, and Jason touched on this: It's the most liquid trading unit.

Nine out of 10 transactions happen in a dollar cross. Nine out of 10 transactions happen in a dollar cross. No one can compete with the dollar. There is no competition.

However, can this change? And I go back to my too big to fail. It can change. It's just not going to be done overnight. This is something that's going to take decades.

Of course, if we think about who can challenge, the euro comes to mind. Euro is second in terms of volume overall. It's an economic power. The problem with Eurozone in general is political fragmentation. That creates a problem.

Another substitute, or another challenger could be China, of course. They have the economic power, they have the global influence. They are a technological competitor. But again, the political system is not trustworthy.

I actually think that and again, this is not going to happen overnight, but if the U.S. does somehow manage to lose that trust, and others — like Eurozone, China, it could be a BRICs common currency, it could be Asia’s common currency, or LatAm, or whatever else we come up with. Crypto, whatever we come up with — I think in the future, and again, this could take decades: I think we could, though, I see a path towards several currency, reserve currencies.

I don't see why the U.S. dollar in particular needs to lose its status and another currency to win it. I actually do think that we could see something in a few decades where there are many currencies that have that status.

Matt Orton:
Yeah, that's a really interesting take, actually. You don't hear that talked about too much, but it seems perhaps the most rational outcome of where the world, and kind of this globalization and trade, still goes. Even if we're making some marginal adjustments to the world order right now. So I want to kind of close with two different things. So number one, final thoughts going forward. I'll turn it to Jason first. With respect to looking at global model portfolios, any specific regions, any specific countries that you would be overweight, underweight going forward, say over the next three to six months?

Jason Richey:
So we have been underweight, just international more broadly, for years in some of our global portfolios, and this is the first year in a long time where we're reevaluating that assumption, right?

It's been a bit of a drag, but we've been riding the U.S. for some time — again, based on everything we've discussed, better economic growth, better regulation, better tech companies, et cetera — but I will say for domestic portfolios, I sound a little bit contradictory, we actually added a small allocation to the MSCI EAFE Index this year. And that's again because of some of the natural diversification that you get from currencies, and some of this European fiscal spend, and just the general cheapness of international stocks.

So I would say the bottom line, what's the takeaway, is that I don't want to be void of international exposure. I do still have a U.S. bias. I think owning some international makes at least a little bit of sense.

In the EAFE index, you end up getting a lot of financials, you get a lot of industrials, and I think you still have slower growth, in my opinion. Especially because we have the overhang of tariffs, for at least the next couple of quarters. I do think the tariff issue sticks around.

So now we've looked at Germany, we talked a little bit about it here. That market took off. We might've missed the boat. Looking at Korea from the semiconductor and IT aspect, that's a pretty concentrated market. So that's a risk. And I would say the only thing from a country basis that we're not really considering at the moment — or emerging markets — for us is probably a bit more of a broader basket call. And that's either with or without China, just because all the beta that's involved in that type of discussion.

Matt Orton:
Yeah, I think that's interesting. And yeah, I think Germany, in particular, will be interesting to see how all of this plays out. And Antonina, same question for you: What are you looking at that looks particularly interesting? Maybe in the currency market in particular, and what are your expectations for the dollar through year end?

Antonina Tarassiouk:
Yeah, and I'll just echo Jason a little bit that I think you should be looking to diversify your portfolio internationally. And if you are choosing asset managers, you should choose one that does have some international exposure. Now from the trade war, I think there will be winners and losers, right? From where I stand, it's actually very simple. It seems that the countries that have the USMCA — which is Canada and Mexico — will be winners in this. And Trump actually, yesterday, indicated that he's taking a softer stance on both countries. Obviously, the sectoral tariffs stand, but I think in general, relatively speaking to peers, there will be winners.

We already talked deeply about Germany. I think Eurozone in particular — given the fiscal stimulus and given a possible ceasefire in Russia — Ukraine can be also a winner. I am also a skeptical about Asia, in particular, because obviously the trade war is very targeted towards China.

So, I am bearish China in general. I think this is just the beginning of the conversation, so it's going to be a lot of ups and downs, and markets do not like uncertainty. The other thing I'll add though, just again going back to where I started and echoing Jason in terms of having a diverse portfolio, the other thing I'll add though is that the valuations are not necessarily cheap yet. And talking about the dollar, the dollar continues to be overvalued. So what I would do is not, just don't go all in, leave some cash on the side and be ready for more downside so you can take advantage of that.

Matt Orton:
I couldn't agree more. Yeah, my main message has been very similar to both of yours, and I think that the key — just to build on that — has been let the market come to you.

There's going to be speed bumps. Even if you believe and are really bullish on where things are going to go, you're going to have a chance to get back in, because there's going to be a Truth post, or some sort of change at the White House. Something that comes out of left field.

And then you'll be able to redeploy opportunistically and take advantage of an opportunity created, rather than chasing the market. Because there's just so much that we don't know. So this has been a wonderful discussion.

And the last thing I like to do on this podcast now is a final section called “Bullish Binges.” Have a little bit of fun outside of just the markets, and really, it's just something tangible outside of investing.

So what are you binging now? Whether it's reading, other podcasts you like besides Markets in Focus, other shows you're watching, sports you're playing, watching.

I'll start. We had the Kentucky Derby, last weekend from the recording of this, and I discovered a Netflix series called Race for the Crown. If anyone's interested in some drama around sports racing, it's a really good documentary, following all of the owners of the horses. So kind of looking at it from an investing monetary standpoint and how they look at jockeys and make investments. Really fun, I think it's only six or eight episodes, so you can get through it pretty quickly if you binge it like I did. Maybe.

Jason, what are you binging?

Jason Richey:
Yeah, this is a fun topic. So for me — and my wife picks on me a bit about this — I don't watch a whole lot of the NBA during the regular season. I do like binging on Golden State during the playoffs, for some reason. But it was pretty hard. The problem is that the games start late and they go until midnight. So I wouldn't call myself a dedicated Warriors fan, but I would call myself sort of a Warriors playoff binger when it comes around this time of year.

Matt Orton:
That is fair. That's the one problem on the East coast, where we are, is the timing of West Coast games.

Jason Richey:
Yeah, for sure.

Matt Orton:
And Antonina, I'll give you final word on what you're binging.

Antonina Tarassiouk:
Well, let's see. Book, show, and sport. I'll go in that. Book: I'm part of several book clubs, so I do tend to read a lot, but the latest one was The End of the World is Just the Beginning, and it talks about deglobalization. So, exactly what we're living through. It might scare you, if you read it, but that is my recommendation. Show: I'm looking forward to The Gilded Age. I think the next season comes out in June. That is a great show, if you haven't watched it. And last, but not least, sport: I am a hockey fan. It is NHL playoffs. Unfortunately, we lost to the Lightning.

Matt Orton:
I know we talked about it earlier.

Antonina Tarassiouk:
It's killing me. It is not as pleasant to watch the Panthers, but definitely watching NHL playoffs.

Matt Orton:
You're a good sport. I'm a sore loser, so I've stopped watching hockey playoffs after the Tampa Bay Lightning loss. But I give you much more credit than myself and my wife. But Antonina. Jason, this has been fun. This has been a good discussion. Hopefully everybody listening in has enjoyed it as well, and maybe it sparked some additional thoughts and follow-ups, but really appreciate you all tuning in.

Look out for the next episodes that are going to come out on a bi-weekly basis. And until next time, take care. Thanks for listening to Markets in Focus from Raymond James Investment Management. You can find additional episodes and market insights at markets in focus podcasts.com.

You can also subscribe to our podcast on Apple Podcasts, Spotify, or your favorite podcast app.

Until next time, I'm Matt Orton.