Challenges: Is the US still a safe haven for investors?

In the weeks following President Trump’s tariff announcement, we witnessed a remarkable phenomenon. Not only did equity markets plummet – prices of US government bonds (Treasuries) fell sharply as well. Usually, investors seek refuge in Treasuries when there is turmoil in equity markets. The US dollar – typically also a safe haven – weakened as well. 

The fact that US equities and bonds simultaneously were under pressure is unusual. It raises the question of whether investors are losing their confidence in the US. This is a risk to consider. We have seen the Trump administration make several U-turns in its policies in recent months. As a result, investor confidence in the US economy and government policy has decreased. Abrupt policy changes also cause volatility in the Treasury market. Therefore, investors should be cautious with US government bonds. European government bonds are an attractive alternative, as you can read in the article Opportunities.

For years, the US dollar has been the world’s leading reserve currency. Central banks hold large reserves in dollars, and a significant portion of international trade transactions are settled in dollars. At the same time, there has been speculation for decades about an end to the dollar era. Sometimes this is merely ‘wishful thinking,’ as in the song dedicated to the fall of the dollar by reggae singer Peter Tosh.¹ However, when this topic is discussed in the financial press, the tone is usually cautionary. 

We do not believe the dollar will lose its status as a safe haven, because there is no good alternative available yet. Would you like to read more? Our currency expert Georgette Boele has written an insightful article about the role of the dollar as a reserve currency.  

We stay in the US: in recent months, much has been said and written in the financial press about the risk of the US economy facing stagflation. Stagflation is a scenario that does not cheer economists. It is a rare combination of two unfavourable factors: high inflation and stagnant economic growth.

Indeed, we expect inflation in the US to rise as a result of the US tariffs. How high these tariffs ultimately turn out to be depends on the trade deals the US manages to make with its trading partners. As for economic growth: not all economists use the same definition for ‘stagnation.’ 

We do not believe that growth in the US will completely stagnate – in the literal sense of ‘coming to a standstill.’ However, stagnation or not, we do expect US growth to slow down this year and next, compared to 2024. 

Looking at recent ‘soft data’ (sentiment surveys among businesses and consumers), economic sentiment has undeniably deteriorated, as the accompanying chart shows. This pessimism is not yet clearly reflected in the ‘hard data’ – the actual figures on economic activity (such as GDP, employment rate, corporate revenues). ‘Frontloading’² at the beginning of the year even stimulated global trade. But we do expect that at least part of the worsened sentiment will eventually become visible in the ‘hard data.’ 

With that in mind, we recently reduced the risk in the portfolio slightly by lowering the equity position from slightly overweight to neutral. This way, as an investor, you can benefit from opportunities while being more cautiously positioned. We do not expect a recession. However, recession fears may resurface again in equity markets when the hard figures reveal the harsh reality: the tariffs are impacting economic growth. 

^{1 Peter Tosh, The Day the Dollar Die, 1979.}  

^{2 ‘Frontloading’ refers to US companies importing extra products before the import tariffs took effect.}