How Investing Will Change if the Dollar No Longer Rules the World

If you’ve been investing your savings for the past 15 years, there is a situation you’ve hardly ever encountered: the U.S. dollar getting structurally weaker. Given the fallout from President Trump’s “Liberation Day,” you may need to get used to it.

Wall Street was caught off guard when the greenback dropped against major currencies following this past week’s tariff news. Markets feared that protectionism could put an end to the U.S.’s economic dominance since the global financial crisis.

International money managers, who had massively biased their holdings toward U.S. assets, are feeling the urge to find another source of high returns. American investors, long comfortable ignoring foreign stocks, may no longer have that luxury.

“We are working on the assumption that in the next five years, the dollar is going to lose another 10% to 15%,” said Luca Paolini, chief strategist at Switzerland’s Pictet Asset Management.

To be sure, asset managers in many cases are making short-term, defensive moves to protect against a potential recession. It also follows a trend of money leaving the “Magnificent Seven” stocks specifically— Apple , Microsoft , Amazon.com , Alphabet , Meta Platforms , Nvidia and Tesla —for reasons not fully related to Trump .

These companies drove much of the exceptional returns of the past decade and a half, but their collective price/earnings ratio hit a staggering 46 times last December. At such a lofty level, it doesn’t take much for a fall to ensue.

Even excluding the Magnificent Seven, though, Americans who bought the rest of the S&P 500 15 years ago earned a total return of around 380%. Europeans who did the same, unhedged, earned about 490%—thanks to the dollar’s more than 20% gain against the euro, according to FactSet.

The reverse also holds: Eurozone equities returned about 220% in euros, but only 150% in dollars. Japanese equities tell a similar story—the Nikkei 225 gained 300% in yen, but just 160% in dollars. No wonder Americans haven’t rushed to add these stocks to their 401(k)s.

What is striking is that a stronger dollar should, mechanically, hurt U.S. stocks—by reducing the dollar value of overseas earnings—and help foreign ones. Historically, it has been better to buy the S&P 500 when the dollar was weakening. Over the past five years, that held true: Fed rate hikes strengthened the dollar while hurting equities.

But in the seven years before Covid-19, the dollar and U.S. equities moved in sync. That was the heyday of the “American exceptionalism trade,” when U.S. assets outperformed across the board—not just in tech. This included currency-sensitive sectors like industrials.

Two forces helped drive this. One was the fracking boom, which made the U.S. largely energy self-sufficient, cutting corporate costs and turning the dollar into a kind of “petrocurrency.” Investors learned in 2014 the counterintuitive lesson that the U.S. economy may actually suffer when crude prices nosedive, and benefit when they rise.

Indeed, the other factor was that U.S. consumer spending was unrelenting, even at times when gas-pump prices increased. For years, it has been powered by government deficit spending, a tech sector exporting services globally at scale, and the wealth effects from a booming stock market.

Most of that now risks being turned upside down, exposing investors to the prospect of falling equities alongside a weakening currency.

Trump has pledged to plug the budget deficit, which could arguably weaken the dollar. Meanwhile, he has launched a tariff war that has tanked the equity market, triggered retaliation from China and may provoke European blowback against U.S. tech giants.

The new regime could echo the early 2000s, when investors turned against both tech and U.S. stocks in the aftermath of the dot-com bubble. At the time, the dollar also had a positive correlation with equities, as capital flowed into the so-called Brics—Brazil, Russia, India, China, and South Africa.

In a report to clients Friday, Jeff Schulze of ClearBridge Investments noted that international equities have historically picked up the slack when the S&P 500 lagged behind. In such cases, the MSCI EAFE and MSCI Emerging Markets indexes beat the benchmark U.S. index by an annualized average of 2.0 percentage points and 12.1 percentage points, respectively.

A weaker dollar itself helps support the financial resilience of developing nations. Meanwhile, the European Union has rekindled investor hopes that it can close the growth gap with the U.S. through fiscal stimulus, industrial policy and energy independence.

At the same time, this is nothing like the 2000s. The rest of the world is far more exposed to trade than the U.S.’s relatively closed economy and will have to grapple with China rerouting a huge glut of cheap goods there.

Another option for investors, then, is to remain in U.S. equities and hedge the currency risk—but that is expensive—or to broaden exposure to discounted “value” stocks and try to identify potential long-term winners.

An economy reshaped by Trump would imply more investment and less consumption. Since the only profitable way to onshore production—whether a Nike shoe or a General Motors SUV—is to use machines instead of labor, capital goods manufacturers may eventually benefit. But they are also among the hardest hit by today’s indiscriminate disruption to global supply chains.

Given the complete lack of clarity, the only solution for those who still need the long-term upside of stocks may be to do all of it at the same time. Right now, diversification isn’t just a strategy, it is a lifeline.

There has rarely, if ever, been so much tech talent available in the job market. Yet many tech companies say good help is hard to find.

What gives?

U.S. colleges more than doubled the number of computer-science degrees awarded from 2013 to 2022, according to federal data. Then came round after round of layoffs at Google, Meta, Amazon, and others.

The Bureau of Labor Statistics predicts businesses will employ 6% fewer computer programmers in 2034 than they did last year.

All of this should, in theory, mean there is an ample supply of eager, capable engineers ready for hire.

But in their feverish pursuit of artificial-intelligence supremacy, employers say there aren’t enough people with the most in-demand skills. The few perceived as AI savants can command multimillion-dollar pay packages. On a second tier of AI savvy, workers can rake in close to $1 million a year .

Landing a job is tough for most everyone else.

Frustrated job seekers contend businesses could expand the AI talent pipeline with a little imagination. The argument is companies should accept that relatively few people have AI-specific experience because the technology is so new. They ought to focus on identifying candidates with transferable skills and let those people learn on the job.

Often, though, companies seem to hold out for dream candidates with deep backgrounds in machine learning. Many AI-related roles go unfilled for weeks or months—or get taken off job boards only to be reposted soon after.

Playing a different game

It is difficult to define what makes an AI all-star, but I’m sorry to report that it’s probably not whatever you’re doing.

Maybe you’re learning how to work more efficiently with the aid of ChatGPT and its robotic brethren. Perhaps you’re taking one of those innumerable AI certificate courses.

You might as well be playing pickup basketball at your local YMCA in hopes of being signed by the Los Angeles Lakers. The AI minds that companies truly covet are almost as rare as professional athletes.

“We’re talking about hundreds of people in the world, at the most,” says Cristóbal Valenzuela, chief executive of Runway, which makes AI image and video tools.

He describes it like this: Picture an AI model as a machine with 1,000 dials. The goal is to train the machine to detect patterns and predict outcomes. To do this, you have to feed it reams of data and know which dials to adjust—and by how much.

The universe of people with the right touch is confined to those with uncanny intuition, genius-level smarts or the foresight (possibly luck) to go into AI many years ago, before it was all the rage.

As a venture-backed startup with about 120 employees, Runway doesn’t necessarily vie with Silicon Valley giants for the AI job market’s version of LeBron James. But when I spoke with Valenzuela recently, his company was advertising base salaries of up to $440,000 for an engineering manager and $490,000 for a director of machine learning.

A job listing like one of these might attract 2,000 applicants in a week, Valenzuela says, and there is a decent chance he won’t pick any of them. A lot of people who claim to be AI literate merely produce “workslop”—generic, low-quality material. He spends a lot of time reading academic journals and browsing GitHub portfolios, and recruiting people whose work impresses him.

In addition to an uncommon skill set, companies trying to win in the hypercompetitive AI arena are scouting for commitment bordering on fanaticism .

Daniel Park is seeking three new members for his nine-person startup. He says he will wait a year or longer if that’s what it takes to fill roles with advertised base salaries of up to $500,000.

He’s looking for “prodigies” willing to work seven days a week. Much of the team lives together in a six-bedroom house in San Francisco.

If this sounds like a lonely existence, Park’s team members may be able to solve their own problem. His company, Pickle, aims to develop personalised AI companions akin to Tony Stark’s Jarvis in “Iron Man.”

Overlooked

James Strawn wasn’t an AI early adopter, and the father of two teenagers doesn’t want to sacrifice his personal life for a job. He is beginning to wonder whether there is still a place for people like him in the tech sector.

He was laid off over the summer after 25 years at Adobe , where he was a senior software quality-assurance engineer. Strawn, 55, started as a contractor and recalls his hiring as a leap of faith by the company.

He had been an artist and graphic designer. The managers who interviewed him figured he could use that background to help make Illustrator and other Adobe software more user-friendly.

Looking for work now, he doesn’t see the same willingness by companies to take a chance on someone whose résumé isn’t a perfect match to the job description. He’s had one interview since his layoff.

“I always thought my years of experience at a high-profile company would at least be enough to get me interviews where I could explain how I could contribute,” says Strawn, who is taking foundational AI courses. “It’s just not like that.”

The trouble for people starting out in AI—whether recent grads or job switchers like Strawn—is that companies see them as a dime a dozen.

“There’s this AI arms race, and the fact of the matter is entry-level people aren’t going to help you win it,” says Matt Massucci, CEO of the tech recruiting firm Hirewell. “There’s this concept of the 10x engineer—the one engineer who can do the work of 10. That’s what companies are really leaning into and paying for.”

He adds that companies can automate some low-level engineering tasks, which frees up more money to throw at high-end talent.

It’s a dynamic that creates a few handsomely paid haves and a lot more have-nots.

How Investing Will Change if the Dollar No Longer Rules the World

Should the U.S. currency and stocks no longer rise together, Americans will need to broaden their portfolios.

A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.

Playing a different game

Overlooked