Taking Stock of the ‘Sell America’ Trade

Summary

Podcast Summary: The Journal - "Taking Stock of the ‘Sell America’ Trade"

Episode Overview In the April 24, 2025 episode of The Journal, hosted by Jessica Mendoza and featuring insights from Mark Dowding, the Chief Investment Officer of BlueBay Fixed Income at RBC Global Asset Management, the discussion centers on the emerging financial phenomenon known as the "Sell America" trade. This trend marks a significant shift in global investment patterns, where foreign investors are increasingly divesting from U.S. assets. The episode delves into the causes, implications, and future outlook of this trend amidst the political and economic landscape shaped by the Trump administration.

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1. Understanding the 'Sell America' Trade

Jessica Mendoza introduces the concept, highlighting its recent prominence:
"[00:05] Jessica Mendoza: There's a new term that's been making the rounds in the business world this week."

Mark Dowding elaborates on the term's impact:
[00:15] Mark Dowding: Sell America trade continuing to gain momentum.

The "Sell America" trade refers to a shift where international investors are reducing their investments in U.S. equities, bonds, and currency. Dowding emphasizes that this trend isn't merely about selling off assets but also reflects a halt in purchasing them, which inherently holds the same effect.

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2. The Legacy of 'Buy America' and U.S. Market Dominance

Historically, the U.S. has been the focal point for global investments, a period referred to as the "Buy America" or "U.S. Exceptionalism" trade.

Chelsea Delaney provides context on this dominance:
[03:47] Unnamed Analyst: Buy America became a trade that was embraced all over the world.

Factors contributing to this trend include the U.S. being the world's largest economy with the most sophisticated financial markets. Dowding notes the "tina" (there is no alternative) mindset among investors, where the U.S. asset classes became the default choice due to a lack of equally attractive alternatives.

From 2011 to the episode's release, foreign ownership in U.S. equities surged from $4 trillion to nearly $19 trillion, and holdings in U.S. treasuries approached $9 trillion, underscoring the U.S.'s significant pull in global markets.

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3. Political Shifts and Their Economic Repercussions

The onset of Trump's second term introduced volatility that began challenging the established "Buy America" paradigm.

Dowding reflects on the impact of policy announcements:
[02:16] Mark Dowding: Some of the policy announcements that we have witnessed have led investors to question whether the US Economy will continue to grow as strongly as it has been growing in the past.

The initial optimism following Trump's election, driven by expectations of tax cuts and deregulation, led to a stock market rally and a strengthening dollar. However, the aggressive implementation of steep tariffs marked a turning point.

Donald Trump announced a significant policy shift on April 2, 2025:
[07:53] Donald Trump: April 2, 2025, will forever be remembered as the day American industry was reborn.

These tariffs, deeper than anticipated, triggered a major market sell-off. The S&P 500 plunged 10% over two days, marking the index's worst performance in the first 94 days of any presidential term.

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4. Market Turbulence and Investor Confidence

The aftermath of the tariff announcements saw unusual market behavior where stocks, bonds, and the U.S. dollar all declined simultaneously— a rare occurrence that signified waning investor confidence.

Chelsea Delaney summarizes the market reaction:
[08:49] Unnamed Analyst: It's very unusual. Yeah, it's definitely unusual.

This loss of confidence has tangible consequences:

• Higher Borrowing Costs: Reduced investment in U.S. bonds makes government borrowing more expensive.
• Weaker Dollar: Increases the cost of imports for U.S. companies and diminishes Americans' purchasing power abroad.

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5. Political Struggles: Threats Against Federal Reserve Chair Powell

A significant flashpoint exacerbating investor unease was President Trump's overt pressures on Federal Reserve Chair Jerome Powell.

Dowding explains the tension:
[09:55] Unnamed Analyst: ...US Investors threatening to fire the Fed chair is, I think, a bit of a red line.

Trump's criticism of Powell, especially after Powell indicated that tariffs might temporarily raise inflation, led to aggressive rhetoric: [11:44] Jessica Mendoza: The next day, Trump wrote on Truth Social about Powell, quote, "termination cannot come fast enough."

This move threatened the perceived independence of the Federal Reserve, a cornerstone of financial stability, further unsettling investors.

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6. Shifting Investor Sentiments and the Future of U.S. Assets

The cumulative impact of tariff hikes and political interference has led investors to reassess the attractiveness of U.S. assets.

Unnamed Analyst speculates on the permanence of the trend:
[15:40] Unnamed Analyst: I don't think it's a flash in the pan. I think it has started a broader conversation...

Investors are now contemplating diversifying their portfolios to include European and Japanese markets, seeking more stable and predictable environments.

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7. Moving Toward New Investment Opportunities

As the "Sell America" trade gains traction, investors are reallocating their capital to other regions.

Mark Dowding shares his strategy:
[16:55] Mark Dowding: ...I think it's the yen that I have at the top of my list. But I think there are other global currencies that also look relatively attractive.

Dowding points to Europe and Japan as emerging alternatives, where markets previously underappreciated are now attracting renewed attention. This shift also reflects a growing preference for "home bias," where investors favor domestic over foreign investments, potentially reducing the U.S.'s dominance in global finance.

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8. Conclusion: A New Era of Financial Volatility

The Journal encapsulates the episode by highlighting the significant volatility shaking the U.S. markets, the uncertain future of U.S. investment attractiveness, and the broader implications for global financial dynamics. Investors are navigating what could be a long-term paradigm shift, moving away from traditionally secure American assets toward more diversified international portfolios.

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Notable Quotes:

• "[00:15] Mark Dowding: Sell America trade continuing to gain momentum."

• "[07:53] Donald Trump: April 2, 2025, will forever be remembered as the day American industry was reborn."

• "[09:44] Unnamed Analyst: And..."

• "[15:40] Unnamed Analyst: I don't think it's a flash in the pan. I think it has started a broader conversation..."

• "[16:55] Mark Dowding: ...I think it's the yen that I have at the top of my list."

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Final Thoughts The "Sell America" trade signifies a pivotal moment in global investment trends, driven by policy decisions and political discord. As foreign investors reassess the stability and profitability of U.S. assets, the repercussions will reverberate through international markets, potentially reshaping the landscape of global finance.

Transcript

[Jessica Mendoza]

There's a new term that's been making the rounds in the business world this week.

[Mark Dowding]

The Sell America trade caused whiplash on Wall Street.

[Chelsea Delaney]

The quote, Sell America trade.

[Unnamed Analyst]

Sell America.

[Mark Dowding]

Sell America trade continuing to gain momentum. This, of course.

[Jessica Mendoza]

Have you heard the term Sell America?

[Mark Dowding]

We're familiar with the Sell America story. Sell it all. Sell the bonds, sell the stock, sell the currency. Look, I think it's less about selling it, it's more a question about stop buying it. And if people stop buying, effectively, it has the same effect, doesn't it?

[Jessica Mendoza]

The Sell America trade refers to a new market phenomenon where investors overseas are pulling back from US Assets.

[Mark Dowding]

The business I'm overseeing is managing funds which invest in government bonds and other sorts of bonds. For investors located worldwide.

[Jessica Mendoza]

Mark Dowding has quite the title. He's the chief investment officer of BlueBay Fixed Income at RBC Global Asset Management. Mark is based in London and He manages over $130 billion in assets.

[Mark Dowding]

Within all of the assets that we manage, the bulk of the assets you would say are actually allocated to US Dollar securities.

[Jessica Mendoza]

And why is that?

[Mark Dowding]

Well, I guess, of course it goes without saying that the US Is the world's largest economy. It's the economic superpower. Obviously, the US has got the world's largest and deepest and most sophisticated financial markets. And sometimes we use the abbreviation tina, which stands for there is no alternative. Investors end up investing in the US Almost because there's not enough choice to go shopping in elsewhere in the world for foreign investors.

[Jessica Mendoza]

The US Stock market and the US Bond market have long been considered great places to invest. But just a few months into Trump's second term, those markets have seen dramatic swings brought on by threats of a trade war and government infighting.

[Mark Dowding]

Some of the policy announcements that we have witnessed have led investors to question whether the US Economy will continue to grow as strongly as it has been growing in the past. And that's actually led us to adjust our view and actually turn more away from being one time dollar bulls towards being dollar bears.

[Jessica Mendoza]

For Mark and many investors around the world, the uncertainty in the US Financial system is starting to feel like an inflection point.

[Mark Dowding]

All of a sudden, there's a bit of a rethinking about how much can you rely on the US if you are located overseas. And all of a sudden the US Is looking like a less attractive destination for your capital. It's no longer looking as safe as it once was.

[Jessica Mendoza]

Welcome to the Journal about money, business and power. I'm Jessica Mendoza. It's Thursday, April 24th, coming up on the show, why foreign investors are Selling America. Before there was Sell America, there was Buy America. You might know it as the US Exceptionalism trade.

[Unnamed Analyst]

Buy America became a trade that was embraced all over the world. That's been the trade for basically over a decade. So everybody was sort of pouring in to these US Bets.

[Jessica Mendoza]

Our colleague Chelsea Delaney reports on markets.

[Unnamed Analyst]

Investors have just been pouring in from abroad to American stocks. They've been buying American bonds. Part of that is the fact that the dollar, the US Dollar, is the world's reserve currency. It means that central banks around the world, they want to hold dollars.

[Jessica Mendoza]

So quick, Econ101 stocks are shares of public companies. Treasury bonds are essentially a loan to the US Government from an investor, and that loan is in dollars. Since the end of World War II, treasury bonds have been considered some of the safest bets in the world because investors could count on the US Government to not default on its loans. This relative stability in both markets continued for decades.

[Unnamed Analyst]

Coming out of the 2008 financial crisis, the US economy recovered a lot faster than the rest of the world. Like Europe has been stuck in this stagnation. Japan been battling deflation. China has been really struggling for several years now. And so the US economy was just growing much faster than anybody else's.

[Jessica Mendoza]

That growth spurred foreign investors to invest in all sorts of assets. In the US the stock market thrived and it was given even more of a boost recently by the rise of artificial intelligence.

[Unnamed Analyst]

America has this very fast growing tech industry. It's been the leader in a lot of sort of high growing industries. And so that's attracted all sorts of investors.

[Jessica Mendoza]

How much of a stronghold has the US had on the world economy recently? Is that a quantifiable number?

[Unnamed Analyst]

So foreigners own now about almost $19 trillion worth of U.S. equities. And if you were to go back to 2011, that's only 4 trillion coming into this year.

[Jessica Mendoza]

U.S. stocks had grown to make up more than 70% of the MSCI World, one of the most popular global stock market indexes. And as of February, foreign investors and governments owned almost $9 trillion in U.S. treasuries. And so just stepping back, big picture, the way that this idea of American exceptionalism and the way that it's sort of taken hold of global markets, what has that meant for the U.S. what's sort of the upshot?

[Unnamed Analyst]

The upshot of American exceptionalism for the US is that it's led to a lot of money coming into America. And for the US Government, that means that it's been Cheaper to borrow. And the US has an ever growing budget and trade deficit, so that has helped fill that gap. This demand for American assets, the demand from abroad for American stocks, has been a huge reason why US Markets have grown as fast as they have and why US Stocks have a much higher valuation than the rest of the world.

[Jessica Mendoza]

For years, that was the status quo. Investors saw the American stock market as a reliable place to get rich. And after Trump's election in November, US Markets looked even stronger.

[Unnamed Analyst]

We saw the American exceptionalism trade turbocharged. People called it the Trump trade. People thought that Trump was going to cut taxes, he was going to deregulate, and the American economy was going to do even better. And so there was this big rally in stocks. The dollar went up.

[Jessica Mendoza]

But soon after Trump took office, he started doing something he didn't do in his first term, aggressively implementing steep tariffs. That started to worry investors.

[Unnamed Analyst]

It became clear and clear to investors that he might mean at this time that he might actually do it. He might impose these really steep tariffs on global trading partners. And that led to a lot of volatility in the first quarter of the year. And then we had Liberation Day.

[Donald Trump]

April 2, 2025, will forever be remembered as the day American industry was reborn.

[Unnamed Analyst]

The day the tariffs that they introduced were much, much deeper than investors had expected. And that's when you start to really see the sell off take hold.

[Mark Dowding]

The announcement could affect trillions of dollars of US Imports.

[Unnamed Analyst]

That's when we start to see markets getting a little funky. The market's reaction clear and jarring. The S&P 500 plunging 10% in two days.

[Jessica Mendoza]

Since Trump's inauguration, the S&P 500 is down roughly 10%. That's the index's worst performance in the first 94 days of any presidential term on record. Then, just this past Monday, something surprising happened. The stock market, the bond market, and the value of the US Dollar were all down.

[Unnamed Analyst]

It's very unusual. Yeah, it's definitely unusual. So typically when you see stocks selling off, you would see Treasuries in the dollar rising. And then after Liberation Day, we didn't see that. We started to see all three of these things selling at once. And that was really a sign that investors were losing confidence in American assets and American policy.

[Jessica Mendoza]

Lost confidence can have real consequences. Less investment in the US Bond market makes it more expensive for the government to borrow. And a weak dollar means U.S. companies pay more for imports, and Americans have less buying power on trips abroad. What is the Trump administration saying about all of these market issues?

[Unnamed Analyst]

The Trump administration has downplayed how serious this is. And I think Trump himself has said, like, this can be painful, but you know, in the end it'll be worth it.

[Donald Trump]

I don't want anything to go down, but sometimes you have to take medicine to fix something.

[Unnamed Analyst]

And.

[Jessica Mendoza]

Is there anything else that's been worrying investors besides the administration's trade policy.

[Unnamed Analyst]

For investors, global investors, US Investors threatening to fire the Fed chair is, I think, a bit of a red line. The pressure that Trump has been putting on Jerome Powell has definitely added another layer to investors anxiety about the fact that, you know, we're potentially dealing with a less predictable America.

[Jessica Mendoza]

That's coming up next.

[Chelsea Delaney]

Hey, wouldn't it be great if life came with a remote control? You know, you could hit pause when you needed to or hit rewind like that time you knocked down that wasp's nest.

[Mark Dowding]

Uh oh.

[Chelsea Delaney]

Well, life doesn't always give you time to change the outcome, but prediabetes does. With early diagnosis and a few healthy changes, you can stop prediabetes before it leads to type 2 diabetes. To learn your risk, take the one minute test today at Do I have Prediabetes.org brought to you by the Ad Council and its Prediabetes Awareness partners.

[Donald Trump]

Thank you and good afternoon.

[Unnamed Analyst]

It's great to be back in Chicago.

[Jessica Mendoza]

Last week, Federal Reserve Chair Jerome Powell delivered an address on the economic outlook of the United States.

[Unnamed Analyst]

He was talking in a kind of low key way, as Powell is known to do about the economic outlook. Tariffs are highly likely to generate at least a temporary rise in inflation. And one of the things he said was that there is a strong likelihood that consumers are going to face higher prices. And that seemed to really set Trump off.

[Jessica Mendoza]

The next day, Trump wrote on Truth Social about Powell, quote, termination cannot come fast enough.

[Unnamed Analyst]

There's been some name calling. He called him a major loser. He's been calling him Mr. Too Late, as in too late to cut interest rates.

[Jessica Mendoza]

Trump appointed Powell, a Republican, to chair the Federal reserve back in 2018. And since then, Trump has been very vocal about wanting Powell to cut interest rates. The Federal Reserve makes decisions about rate cuts based on economic realities independent of the president.

[Unnamed Analyst]

Powell is likely very worried about inflation and the fact that higher prices on U.S. imports could drive up inflation. As a central banker, that likely means you would need to hold interest rates higher. Trump, on the other hand, wants interest rates to to be lower because that could help boost the economy.

[Jessica Mendoza]

Some senior officials, according to Wall Street Journal reporting, took Trump's statements about firing Powell seriously. Although it's Unclear if there's a legal way to do that. White House lawyers reportedly looked into options for removing him. All of this happened very quickly. Trump threatened to fire Powell a week ago on Thursday. By Monday, stocks, bonds and the dollar had all slumped. The next day, Tuesday, a reporter asked Trump in the Oval Office if he still had intentions to fire Powell.

[Donald Trump]

None whatsoever. Never did the press runs away with things. No, I have no intention of firing him. I would like to.

[Jessica Mendoza]

A White House spokesperson declined to comment on Trump's private conversations. Both the treasury and Commerce Departments did not respond to requests for comment. How are investors feeling about Trump's kind of shifting rhetoric around Powell?

[Unnamed Analyst]

For investors, even just mentioning it, even just talking about this is something that just reinforces this idea that we're in a new era, we're in a new world where, you know, the US Is not playing by the same rules. It's, I mean, the Trump administration, both through the tariff policy and through these threats to fire Powell, it's shown that it's willing to break with these norms of these conventions. Yeah, these long standing conventions that have been one of the reasons why people want to invest in the U.S. so I think, yeah, all of these attacks have really shaken investors.

[Jessica Mendoza]

Trump seemed to have felt the pain of the downturn the same day he walked back his comments on Powell. He told reporters that he was considering lowering tariffs on China.

[Donald Trump]

145% is very high and it won't be that high. Not going to be that high.

[Unnamed Analyst]

And that's music to investors ears.

[Jessica Mendoza]

Both US Stock futures and the dollar rallied on Wednesday in response.

[Unnamed Analyst]

Overall, investors are happy to see the administration walking back some of the more dramatic threats. The Trump administration's willingness to pivot is something that they want to see. But confidence is certainly still going to be shaken and investors are still going to be very wary about what comes next in this roller coaster.

[Jessica Mendoza]

A roller coaster or in other words, volatility. Something investors definitely don't like. April is shaping up to be the most volatile month for markets since the pandemic crash in 2020. And it's still unclear what the coming months will look like in terms of the administration's approach to trade and the central bank. And so for many foreign investors, none of this looks good. What's looking better is the Sell America trade. Do you think that Sell America is a flash in the pan or a real paradigm shift?

[Unnamed Analyst]

There's definitely a seed that has been sown and it probably will take a longer period of time to rebuild confidence once it's been shaken I think we probably will see some stabilization in the market. But investors are making long term plans to sell America. And a lot of investors were really concerned that their investments had become so concentrated in the U.S. but the performance had been so good and so you couldn't really stop because you, you would be underperforming and it would be bad for your clients or your pensioners. And nobody wants to underperform. So even before this, people were worried about being so concentrated in the US and this has just shown people why you don't want to do that. And so I don't think it's a flash in the pan. I think it has started a broader conversation, especially among foreign investors who don't have to invest in the US they have a lot of other options. So I think it has, yeah, it has started a conversation about investing more elsewhere.

[Jessica Mendoza]

So if global investors are selling America, what are they buying? In London, Mark Dowding, the investment executive, says he's now more intrigued by markets in Europe and Japan.

[Mark Dowding]

So purely looking at things from a currency perspective, I think it's the yen that I have at the top of my list. But I think there are other global currencies that also look relative, relatively attractive. I mean, I'd rather own European stocks denominated in euros or Japanese stocks owned denominated in yen. At the moment, those overseas markets which maybe have been under, loved and overlooked for, for a period are now likely to see a bit more attention. We're also looking at a world where there's more of a sense in which there's more of a home bias going forward. More of a sense of let's keep more of our money at home. And of course, if those countries do keep their money more at home, it means that the US is going to benefit less from overseas investors supporting their markets. Time will tell. We'll have to see.

[Jessica Mendoza]

That's all for today. Thursday, April 24th. The journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Nick Timiros, Gunjan Banerjee, Greg Ip, Alastair MacDonald and Jack Pitcher. Thanks for listening. See you tomorrow.