To the extent that U.S. investors have positive returns so far in 2025, there's a good chance they've come from unexpected places. As the chart from the Financial Times below shows, U.S. stocks and bonds haven't contributed much to investor portfolios, but that doesn't mean there haven't been opportunities elsewhere.
What do gold, Bitcoin, and foreign stocks have in common that might explain why they have been 2025's leaders? They all benefit from the dollar declining in value.
The value of the dollar is often overlooked by U.S. investors. Given that our lives are typically denominated entirely in dollars, we don't tend to notice the impact of its fluctuations. But as many foreign investors (or U.S. citizens who travel internationally) will attest, dollar valuation changes are important.
Currency moves are typically muted relative to changes in other asset classes, but that hasn't been the case this year. The dollar is down nearly -10% from its January peak.
Gold and Bitcoin are the preeminent "dollar debasement" insurance plays among investors, so it's no surprise they have both surged in response. Foreign stocks are a little less obvious — U.S. investors benefit from the conversion of their returns in local (foreign) currencies to the weaker dollar. In effect, they get the local stock market return, plus a currency "boost" from the declining dollar.
While SMI hasn't specifically noted the potential for a weaker dollar as a reason to diversify beyond U.S. stocks and bonds (i.e., the typical "60/40 portfolio" or similar), the need for such diversification is a theme we've hit repeatedly in recent years. Our model portfolios have benefited from healthy allocations to gold and foreign stocks in 2025, while the new RAA ETF included within our Dynamic Asset Allocation strategy has small exposure to Bitcoin as well.
Dollar prognosis from here?
After such a large move (for a currency), it's natural to wonder if this move is near its end. It certainly could be, as the current dollar level has served as something of a floor in recent years.
However, if we pull the time frame back, it's clear that the dollar has traded much lower in the past.
With such a strong recent move to the rough level that has marked a low point in recent years, coupled with stocks approaching their all-time highs again, it wouldn't be terribly surprising to see the dollar bounce back a bit here. That would normally be an impetus for stocks to back down a bit, which also wouldn't be a surprising outcome after the huge run higher they've had since April 9.
After that short-term inkling though? It's anybody's guess.
When I wrote about the strong setup for foreign stocks just a few months ago, a large part of that thinking was that the U.S. was trying to cut its runaway deficit spending at the same time that many foreign countries were drawing up plans to expand theirs. Now, the U.S. has abandoned spending restraint and is looking to roughly maintain (or even expand) its recent level of government spending. As this shift has transpired, U.S. assets have rallied back and started outperforming again.
I still think it's likely that foreign stocks continue to perform better than they have for most of the past decade. That's in large part due to the idea that it's hard to put the toothpaste back in the tube after the tariff and defense spending ruckus, plus the fact that foreign countries are spending again (for the first time in a long time for many of them). Improving opportunities in their home nations, coupled with a hint of disillusionment about the U.S., dollar, and Treasuries, mean foreign investors are likely to continue drawing down their immense levels of U.S. asset investment and bring some of that money home.
Couple that with the broad idea that there's really no alternative to continued currency debasement given the trajectory of U.S. government spending and there's good reason to think the recent trends of gold, Bitcoin, and foreign stocks being strong relative performers is likely to continue.
As SMI members know, we'll monitor this and respond based on our objective analysis of market trends and momentum. That's how we got into those asset classes in the first place, and we expect they'll continue to be a good guide.
If you're not invested in those asset classes and need a guide as to how to approach broadening your portfolio asset mix, the links in the sidebar are a good place to start. The SMI strategies are built to make the process simple for individuals to implement, even if you're not an expert in the dollar or these alternative asset classes.
