Fade America
There have been times during Trump’s second term that have had markets and financial commentators alike calling for an era of ‘sell-America’. Sell-America is the notion describing a scenario in which investor sentiment sours towards the US so much so that valuations across US assets decline. This is a unique scenario because many of those assets act as automatic stabilisers to one another. For example, when the value of the Dollar declines, it should make assets dominated in that currency rise in value for two reasons: 1) overseas earnings of US corporations become more valuable and 2) the nominal cost of the asset from a non-USD based investor becomes cheaper.
So sell-America is an interesting phenomenon. Despite those fleeing sessions and moments where cross-asset value destruction has occurred within the US, the trend hasn’t endured. Indeed, a Trump-trade, in any of its many guises from MAGA to TACO, hasn’t been reliably delivered for any extended period of time between trading sessions. That said, with the Dollar having lost significant value, the current valuation of US equities is noteworthy and may even uncover the secret for the US Dollar to become the funding currency for future carry trades.
This week, the S&P 500 erased all of its year-to-date gains and US equities in general stand as a laggard to global equity performance. With the Dollar still likely to be offered into year-end there will be an opportunity for investors to fade instead of sell-America by using USD as the funding side of carry trades. The carry trade, exploiting yield differentials across geographies whilst remaining at least partially unhedged on FX, has retained its popularity into 2026. However, the Dollar has seldom been the funding currency of choice. Wider market conditions will be required to remain favourable for this to continue of course but if volatility remains contained, the Dollar could face a fresh source of selling. This trend will be supported by the scenario in which the Fed does ultimately deliver two (or more) rate cuts this year and less tenable should the tail risks introduced during the publication of the January minutes materialise further.
Discussion and Analysis by Charles Porter
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