The Almighty Buck

Atlanta (July 10, 2025) – The U.S. stock market rebounded sharply from its april lows. In fact, the S&P 500 registered one of its quickest recoveries ever. The index is up 10% since the tariff selloff, and in late June marked a new all-time high. The pace and magnitude of the rebound are stunning and, to some investors, communicate the “all clear.”

While it’s been anything but a smooth ride (we knew that was coming!), there is no question that Trump’s policies favor American products, workers and growth. One might fairly debate the approach and impact of one or more of these policies, but the stated goal of “American Exceptionalism” seems clear. While I remain optimistic about the U.S. economy and market in the long term, perhaps somewhat uniquely, I continue to urge caution and diversification. Several fundamental concerns could make the U.S. market vulnerable in the near term.

The first area of concern is the U.S. balance sheet, and, more specifically, how this impacts the strength of the U.S. Dollar. Since World War II, the U.S. Dollar (“USD”) has been the world’s reserve currency. The Dollar is the most widely accepted “safe haven” medium of exchange. While the USD was initially backed by gold, the U.S. abandoned the gold standard in 1971. With the Dollar untethered from any tangible commodity (and similar to U.S. Treasuries), the U.S. has been able to “print” dollars, borrow cheaply and run massive trade deficits with the rest of the world. Backed by the “full faith and credit” of the U.S. government, the strength of the U.S. Dollar is integrally linked to investor confidence and the United States’ ability to raise revenue (taxes) and manage its debt (U.S. Treasuries).

Recent U.S. policy has shaken investor confidence in domestic assets and the USD. The newly passed “Big Beautiful Bill” could also add trillions of dollars to the already staggering U.S. debt load over the coming decade. The Dollar—which has generally enjoyed relative strength (compared to other currencies) since 2014—has been on a steady decline this year. Even though the United States is undoubtedly the strongest economic engine in the world, and I am certainly not calling for some existential U.S. default, I expect continued pressure on the USD.

Added to our country’s not-so-ideal balance sheet and, ipso facto, its more vulnerable currency, is the issue of near-term valuations—and particularly within US large-cap tech. If you’ve been reading this column (hopefully there are a few loyal followers!!), you’ll know that this is not the first time I’ve raised this concern. U.S. large-cap tech names (as exemplified by the “Mag Seven”) continue to enjoy outlier valuations. Even though some may point to their unusually durable business models and profitability, the “risk-adjusted” return profile of an incremental investment at current levels seems untenable. The frenzy to scale AI, which feels eerily like the internet in the late 1990s, seems euphoric. In the end, I’ll bet forecasted AI spend is overstated, and more than a handful of companies that sell into that market will be negatively revalued.

Many of my clients continue to hold equities (both large and small) in the U.S., although most of these are not trading at 30-plus times forward earnings. In my view, being a disciplined investor is more about what you get (earnings) for what you pay for (multiple of earnings)—as opposed to blindly following the next new trend. The U.S. may well be on the cusp of an exciting growth curve, and the Big Beautiful Bill could help drive that growth. Yet, the market is expensive (especially in certain areas), and earnings revisions have recently been negative. Provided this backdrop, I would continue to center on diversification, as I suspect a linear path up and to the right is unlikely.

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