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European Investors Face Double Blow as Dollar Weakens and US Stocks Slide

by Team Lumida
March 21, 2025
in Markets
Reading Time: 4 mins read
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Key Takeaways:

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  • European investors in US equities are experiencing amplified losses as a weakening dollar compounds the decline in US stock prices.
  • The S&P 500 is down nearly 4% in dollar terms this year but over 8% in euro terms, reversing a long-standing “virtuous cycle” of stock and currency gains.
  • Shifting perceptions of the dollar as a safe haven and concerns over US economic growth are driving the currency’s decline.
  • European fund managers are increasingly underweight US equities, signaling a potential exodus that could further pressure Wall Street.

What Happened?

European investors in US equities are grappling with significant losses as the dollar weakens alongside a decline in US stock prices. The S&P 500 has fallen nearly 4% in dollar terms this year, but the impact is more severe for euro-based investors, with losses exceeding 8% due to currency depreciation.

This marks a reversal of the “virtuous cycle” that had previously benefited European investors. In the past, strong US stock performance and a rising dollar reinforced each other, encouraging more foreign investment. However, the dollar’s recent decline, driven by concerns over US economic growth and optimism about Europe’s defense spending, has disrupted this pattern.


Why It Matters?

The weakening dollar is reshaping how European investors view US assets. Historically, the dollar acted as a safe haven during market stress, allowing investors to hold unhedged positions in US equities. However, this year’s sell-off has exposed a “correlation breakdown” between the dollar and US stocks, eroding the currency’s risk-reducing properties.

This shift could have broader implications for Wall Street. A growing number of European fund managers are underweight US equities, with over 20% reporting reduced exposure in a recent Bank of America survey. A larger European retreat from US stocks could exacerbate the ongoing correction in the S&P 500, adding to market volatility.


What’s Next?

If the dollar continues to weaken and the correlation between US equities and the currency remains broken, European investors may increasingly hedge their currency exposure or shift allocations away from US stocks. This could lead to reduced foreign inflows into Wall Street, further pressuring US markets.

Investors should monitor the dollar’s trajectory, US economic data, and European fund manager sentiment for signs of a deeper shift in global portfolio allocations. Additionally, the impact of Trump’s protectionist policies and Europe’s economic optimism will play a key role in shaping currency and equity market dynamics.

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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
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Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018