For U.S. financial markets, this year may mark the beginning of the end of a unique era.
Ron Temple, Chief Market Strategist at Lazard, which oversees the firm's advisory and asset management businesses, believes 2025 signals the start of the decline in U.S. financial market exceptionalism. Temple attributes this outlook to growing macroeconomic concerns, which could drive investors away from the U.S. dollar and eventually lead to a sell-off in U.S. assets.
"I think this year marks the starting point for the end of U.S. market exceptionalism, a trend that may first emerge in currency markets before extending to other risk assets by 2026," Temple stated in a Tuesday interview with CNBC.
Temple outlined several factors prompting investors to reconsider their U.S. asset exposure:
**Fed Credibility Concerns**: The Federal Reserve, the world's most influential central bank, faces mounting skepticism this year. It is under pressure from President Trump to implement aggressive rate cuts—a move that risks fueling inflation.
At the same time, the Fed must strike a delicate balance between supporting the labor market and controlling price surges. Despite inflation remaining above the 2% target, policymakers have already delivered three rate cuts this year.
**Debt Worries**: U.S. national debt has surpassed a historic $38 trillion this year, intensifying fears that America's borrowing and spending patterns are unsustainable.
This is one reason Treasury yields could rise even as the Fed eases policy. Investors anticipate worsening inflation pressures as deficits expand and borrowing accelerates.
Temple predicts investors may initially reduce U.S. exposure through currency hedges, noting that some have already expressed intentions to cut dollar holdings.
Eventually, he warns, this could escalate into broader selling of fixed-income assets like Treasuries and risk assets such as stocks. The market got a preview of this scenario in April when Trump's tariff announcement triggered a sell-off in U.S. equities and bonds.
"Frankly, I believe history will show 2025 as the year many first questioned whether U.S. Treasuries should be treated as credit assets rather than risk-free instruments," Temple added.
This year, Wall Street has debated the sustainability of U.S. market outperformance. Growing skepticism ties waning appeal to tariffs, economic uncertainties, and rising deficit spending.
Goldman Sachs recently warned clients that U.S. market returns could trail other major economies over the next decade.
Similarly, analysts at Bank of America and Apollo Global Management project near-flat returns for the S&P 500, fueling fears of a "lost decade" for U.S. markets.
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