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.
3 min
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.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
From making unpopular decisions to learning when to listen, leaders from five businesses reveal what nobody prepared them for — and how running a company has challenged their expectations.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
4 minA sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.
The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.
The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.
The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.
This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.
The debt behind the AI build-out
Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.
Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.
JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.
The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.
That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.
A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.
When interest rates rise, those assumptions become less forgiving.
Inflation changes the calculation
September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.
The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.
CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.
Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.
Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.
The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.
China adds another source of pressure
Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.
Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.
The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.
That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.
A reset rather than the end of the boom
The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.
What has changed is the market’s willingness to overlook the price and financing structure of that growth.
The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.
More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.
For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.
Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.
The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.
Fact box
Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026
Philadelphia Semiconductor Index: Down approximately 11.4 per cent
Micron Technology: Down approximately 14.6 per cent
Samsung Electronics: Down approximately 18 per cent
SK Hynix: Down approximately 24 per cent
US September inflation: 3.7 per cent annually
Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion
Warmer minimalism, tactile materials and wellness focused layouts are redefining luxury interiors as homeowners design for comfort, connection and lasting appeal.
A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.
