Currencies, stocks, debt securities: what traders lost and what they won in 2025

Donald Trump's military conflicts and unpredictable trade policies have shattered conventional wisdom about the strength of the U.S. economy and its assets, leading to unexpected beneficiaries in financial markets. Few expected that the dollar - the symbol of «American exceptionalism» - would sag sharply, the main U.S. index S&P 500 would first collapse and then set a new record, and European stocks - which had been lagging behind until recently - would suddenly become must-buy.

Bloomberg discerning where professional investors missed and where they were accurate in their forecasts for the first six months of 2025.

The market expected that tax cuts and duty hikes by U.S. President Donald Trump would spur inflation and force the Fed to keep rates high - this, it seemed, was supposed to support the dollar. However, the index of the main reserve currency had its worst start to the year in at least 20 years, Bloomberg writes. And according to data from the Financial Times, the dollar had its worst first half of the year since 1973. April's «Emancipation Day duties» were particularly painful - their scale and aggressiveness sparked fears of recession and opinions that the White House was purposely weakening the U.S. currency to support exports.

Analysts at JPMorgan, Morgan Stanley and Societe Generale did not expect the dollar to give up positions so quickly - in their baseline scenario it was supposed to weaken gradually, Bloomberg noted. Now JPMorgan says: the disconnect between the dollar, interest rates and the stock market may indicate structural weakness. The biggest Wall Street bank predicts the dollar will fall another 2% by the end of 2025.

Investors started 2025 with a record share in U.S. stocks: they were inspired by a strong economy and the excitement around artificial intelligence. But by spring, optimism had already waned. First, Chinese AI startup DeepSeek challenged U.S. tech giants in the race for AI leadership. Then there were fears that Trump's duties would lead to a recession.

From February to April, the U.S. stock market lost about $7 trillion in capitalization - primarily in the technology sector. In March, a Bank of America survey recorded a record outflow from U.S. stocks. By April, the bullish mood on Wall Street had all but disappeared. But when Trump suspended the imposition of duties, optimism returned: in late June, the S&P 500 updated its record, and U.S. tech giants became market favorites once again;

Investment companies expected that short-term bonds would benefit from central banks' rate cuts. At the same time, long government bonds were expected to suffer due to increased borrowing and higher government spending. That's exactly what happened, especially in the U.S., where markets are straining to keep an eye on fiscal policy, Bloomberg notes. Pimco and Allspring Global Investments accurately predicted that yields on short- and long-term bonds would begin to diverge, and BlackRock reduced the share of bonds with long maturities in time.

At the start of the year, there were hardly any investors who believed in European stocks - let alone those who would bet on them overtaking U.S. stocks. But that changed dramatically after Germany announced record defense spending in response to Trump's demand that Europe pay for its own security. As a result, Europe's Stoxx Europe 600 index overtook the S&P 500 in gains of 16 percentage points in dollar terms by the end of last week, a record gap since 2006. The euro rose to $1.17, even though currency analysts predicted parity (i.e., expecting strength from the dollar) in early 2025. 

Since 2017, emerging market equities have lagged U.S. equities. At the start of 2025, Morgan Stanley was confident that trend would change. And it did: the boom of AI companies from Taiwan, South Korea and China helped the index grow. Emerging market capitalization grew by $1.8 trillion to a record $29 trillion. According to Bernd Berg of InTouch Capital Markets, investment inflows will continue thanks to moderate inflation and stable growth.

This article was AI-translated and verified by a human editor