Weekly Notes from Tim
By Tim Holland, CFA, Chief Investment Officer
- More than a few folks have taken pen to paper more than a few times on the 2025 sell-off in the US dollar, including us. To quote Whitesnake, here we / I go again.
- The dollar, as measured by the ICE US dollar Index, is down 10% year to date and trading near its 2025 low, which coincides with its 3 ½ year low. While we don’t know for sure why the US dollar is on the back foot (we would argue currency markets are opaque and identifying what factors are driving what currencies at what time is a difficult exercise) the more frequently mentioned factors include US trade and security policy uncertainty causing investors to reconsider exposure to US financial assets; US deficits necessitating more borrowing and thus the creation of more (and ultimately less valuable) dollars; lower US interest rates, following on the Fed’s interest rate cut last week (higher rates tend to be supportive of a currency) and competitor nations, particularly China moving away from the dollar.
- While the performance of the US dollar is of great interest to us, as investors and asset allocators, our primary responsibility is to build portfolios or help our clients build portfolios that deliver the maximum rate of return for the risk taken. And as it concerns US equities and their relationship or lack of relationship with the US dollar, we have been of the mind that stocks can catch a bid regardless of what direction the dollar is trending, a topic we spoke to in our July 7th Weekly Wire, “US Dollar Up, US Dollar Down, US Dollar Sideways – US Stocks Higher Over Time” and a topic we wanted to revisit this week.
- Following on “Liberation Day,” US stocks plunged and the dollar, which had been weak to start 2025, began another leg down (see chart, circle). However, as US stocks bottomed and began to trade higher on April 7th, the dollar did not catch a bid. To put a finer point on things, since April 7th US stocks, as measured by the S&P 500, are up 37% while the US dollar, as measured by the ICE US Dollar Index, is off 6% (see chart, far right). As the world’s reserve currency, the dollar is of incredible importance to the global economy, particularly as it concerns trade. However, as history shows, US equities can – and often do – rally, even when the dollar falters.
Source: FactSet, September 2025
Looking Back, Looking Ahead
By Ben Vaske, BFA, Manager, Investment Strategy
Last Week
Markets extended their positive run, with the S&P 500 gaining nearly 1% for its sixth positive week of the last seven. Year-to-date, the index is now up more than 14%, fully recovering from its April near-bear-market drawdown. September has historically been a difficult month for equities, yet performance so far has been strong across asset classes, styles, and geographies.
Equity leadership continues to broaden. Emerging markets have led Q3 returns, while US large caps have closed the gap on developed international. Small caps made headlines as the Russell 2000 notched its first new all-time high since November 2021, ending a drought of nearly 1,000 trading days. Bonds pulled back last week on higher rates, though the Bloomberg Agg remains up nearly 3% in Q3 and more than 6% YTD.
The Federal Reserve delivered the expected 25 bps cut to the Fed Funds rate last Wednesday. The decision pushed short-term rates lower while long-term yields rose, steepening the curve. The Fed also signaled two more cuts before year-end, guidance that markets have largely priced in. Retail sales surprised to the upside, rising 0.6% in August. Categories such as clothing and sporting goods benefited from back-to-school shopping, but the broader message was clear: the US consumer remains resilient, a critical underpinning for GDP growth.
Other market narratives remain striking. US tariff revenues reached a record $31 billion in August, a 355% increase from a year ago, pushing the effective tariff rate above 17%, its highest in nearly 90 years. Meanwhile, retail investment flows into equities have been positive every week since late May, even as money market fund assets hit a record $7.7 trillion. This growth in cash may signal caution, but it also represents dry powder that could be deployed during the next correction.
This Week
It is a busy week for economic data. Flash services and manufacturing PMIs are expected to remain in expansion territory, while the third revision of Q2 GDP is due with no change anticipated. The Fed’s preferred inflation measure, the PCE index, will be released Friday with headline expectations of 2.7% year-over-year growth. Longer-term yields, particularly the 10-year Treasury near the 4% threshold, will also be closely watched following last week’s cut.
Earnings season is quiet but includes a few notable names, including Micron, Costco, and Accenture. According to FactSet, Q3 earnings are expected to grow 7.7% year-over-year, which would mark the ninth straight quarter of earnings growth.
We hope you have a great week. If there’s anything we can do to help you, please feel free to reach out to ben.vaske@orion.com or opsresearch@orion.com.