European outperformance has concluded for Jens Ehrhardt

European outperformance has concluded for Jens Ehrhardt

In the tumultuous first half of 2025, the US stock market has been a rollercoaster ride, with various events shaking the investment landscape. From the AI boom to President Donald Trump's tariff announcements, the market has shown resilience, yet some underlying concerns persist.

One of the key factors influencing the US market is the weakening US dollar. Jens Ehrhardt, a seasoned fund manager at DJE, has reflected on this phenomenon, highlighting both its positive and negative impacts on US companies.

On the positive side, a weaker dollar can boost the competitiveness of US exporters, making their goods and services more attractive in foreign markets. Additionally, companies with significant foreign sales can benefit from the translation effect, as revenues earned in stronger foreign currencies are converted into more valuable US dollars, enhancing profitability. Larger US companies, especially those in the S&P 500, often derive a substantial portion of their revenue from abroad, and a weaker dollar can act as a tailwind for these multinational corporations by increasing the value of their foreign earnings.

However, the weakening dollar also poses challenges. For US companies that rely heavily on imported goods or raw materials, a weaker dollar can lead to higher costs, potentially squeezing profit margins. Ongoing trade disputes and market volatility can complicate the export landscape and impact profit growth, despite the competitive pricing advantage provided by a weaker dollar. Some foreign investors might respond to a weakening dollar by selling US stocks and bonds, which could further exacerbate the dollar's decline and negatively affect market sentiment.

The impact of a weakening dollar on US companies depends on their specific business strategies and global market exposure. While it can be beneficial for exporters and multinationals, it poses challenges for importers and companies sensitive to market volatility.

The ongoing trade conflict, particularly the tension between the US and Europe, continues to unsettle the US market. The automotive industry in Europe remains in crisis with no end in sight, and many are betting on a resolution in the trade dispute and the expectation that President Trump will eventually back down, known as TACO trades. However, Jens Ehrhardt sees danger in this optimism, citing recent poor US consumer and wage data as another warning sign.

Despite these challenges, the first half of 2025 has seen some bright spots in the US market. The warning light for stocks is flashing a bit yellow, but it is not so bright that one should quickly exit the stock markets. The performance of large, often AI-associated titles, has been strong in the US stock market, with companies like Rheinmetall and SAP already rising significantly in Europe.

However, the mid and small caps in the US are not doing significantly better than before President Trump's election, indicating a lack of market breadth in the current US stock market rally. This, combined with the ongoing trade conflict and the weakening US dollar, suggests that the US market may face some headwinds in the second half of 2025.

In conclusion, the first half of 2025 has been a period of excitement and challenges for the US stock market. The weakening US dollar, trade conflict, and the resilience of the market have been key themes, shaping the investment landscape. As we move forward, it will be crucial for investors to stay vigilant and adapt to the changing market dynamics.

1. The weakening US dollar can boost the competitiveness of US exporters, making their goods and services more attractive in foreign markets, while also benefiting companies with significant foreign sales through the translation effect.
2. On the other hand, a weaker dollar can lead to higher costs for US companies that rely heavily on imported goods or raw materials, potentially squeezing profit margins.
3. The performance of AI-associated titles in the US stock market, such as Rheinmetall and SAP, has been strong in the first half of 2025.
4. The ongoing trade conflict and the weakening US dollar suggest that the US market may face some headwinds in the second half of 2025, especially with the lack of market breadth in the current US stock market rally.
5. As the investment landscape continues to evolve, it will be essential for investors to remain vigilant and adapt to the changing market dynamics, considering factors like personal-finance, business, technology, education-and-self-development, entertainment, general-news, and sports in their decision-making process.

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