The U.S. dollar index tumbled to a three-year low early Monday, while the S&P 500 fell sharply. The 10-year Treasury yield climbed, as government bond investors demand a higher return. Meanwhile, gold and bitcoin are shining as investors shun U.S. financial assets.
The financial market turbulence unleashed by President Donald Trump's trade policies, which already forced him to suspend reciprocal tariffs north of 10% for 90 days, may prove to be the Achilles' heel that compels a more fundamental retreat. It also is highlighting the internal contradictions of Trump's policies, including his desire to protect the dollar's status as the world's reserve currency, while erecting a wall of tariffs that keeps both global trade and capital at bay.
Treasury Yields, Dollar In Synchronized Sell-Off
The U.S. dollar index, which measures the greenback against a basket of advanced economy currencies, fell 0.9% to 98.49 after hitting its the lowest point since February 2022. The 10-year Treasury yield rose four basis points to 4.37%.
By itself, a lower dollar isn't necessarily a bad thing. Many economists think the dollar is overvalued. The worry is that investors are fleeing the safest U.S. assets at a time of rising recession risk. That's when investors would normally gravitate to the dollar and Treasuries, which move in the opposite direction of Treasury yields.
Practically speaking, the economic drag from a falling S&P 500 will be compounded because higher longer-term Treasury yields raise borrowing costs for mortgages and auto loans. But the worry is that a shift in global capital flows could turn into a financial market rout.
Financial flows into U.S. markets have been the other side of the coin of the annual U.S. goods deficit that reached $1.2 trillion in 2024. The U.S. net international investment position sank to -$26.2 trillion at the end of 2024. That's how much more foreigners hold in U.S. financial assets than overseas positions held by Americans.
Trump has bemoaned that $26 trillion figure as a curse. He expects his "medicine" of Trump tariffs to create a U.S. manufacturing boom and shrink the trade gap. But his plan lacks a short-term bridge to get from here to there without risking a financial market drubbing that compounds the hit from tariffs. That could trigger a recession that hurts demand, delays investment and makes federal finances even less sustainable.
Many of the factors that contributed to U.S. financial market outperformance, attracting foreign funds, are suddenly under threat. In addition to wide trade deficits, that includes wide fiscal deficits that added fuel to the economy. Pro-growth immigration policies, an antidote to an aging workforce, and an independent Federal Reserve have also been seen as underpinning America's economic strengths.
Gold, Bitcoin
The gold futures price surged 3.25% to a record $3,437 per ounce on Monday. Gold got a further lift after Trump renewed his attack of Fed Chairman Jerome Powell, demanding "preemptive cuts" in interest rates to stave off economic weakness. Powell has thus far taken a cautious line on further rate cuts amid concern about the inflationary impact of Trump tariffs.
Agnico-Eagle Mines rose 1.7% Monday, hitting a fresh high. AEM stock is on IBD Leaderboard.
The bitcoin price, which used to trade a lot like the Nasdaq, rising in a risk-on environment, has recently been acting like a hedge against a weak dollar. Bitcoin is up 3.2% over the past 24 hours to $87,357, according to CoinDesk.
Strategy, formerly MicroStrategy, popped 1.1%, off morning highs.
S&P 500
The S&P 500 is slumping 2.4%, adding to losses after Trump attacked Powell as a "major loser." Through Thursday, the S&P 500 was 14% below its Feb. 19 all-time closing high, but up 6% from its 2025 closing low on April 8, before Trump's delay of reciprocal tariffs.
The S&P 500 finished the holiday-shortened weak 8.65% below its Election Day close.
