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Bear Market
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Please read important information at the end of this program. Recorded on 07/17/2024.
[Lauren Sanfilippo speaking throughout]
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Source: The New York Times, "The Dollar Has Its Worst Start to a Year Since 1973," June 30, 2025.
The U.S. dollar declines by more than 10% in the first half of 2025, compared to a basket of global currencies.
More remarkable than the steep plunge is the chorus of voices suggesting something more ominous: the beginning of the end of the dollar's role as the global reserve currency.
Lower third:
Lauren J. Sanfilippo
Senior Investment Strategist
Chief Investment Office
Merrill and Bank of America Private Bank
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Investors want to know:
Will a falling dollar and rising deficits affect their investments?
That concern, stoked by tariff uncertainties and rising U.S. debt and deficits, goes hand-in-hand with the suggestion that U.S. financial exceptionalism may be finished, and the country could soon slip to the middle of the economic pack.
We disagree on both counts.
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Market volatility reached historic highs early in the year.
Source: San Francisco Federal Reserve, July 2025.
To be clear, tariff battles have raised new and troubling questions, and the deficit is a serious and growing problem.
But at times like this it's important to focus on some fundamentals, including these three points:
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- The U.S. Dollar reached an all-time high on January 6, 2025.
Source: U.S. Dollar Index, accessed 7/18/2025
- First โ The dollar had been on a tear in recent years and was overvalued compared to other major currencies. From that view, the 2025 pullback looks more like just another cycle in the long history of global currency fluctuations.
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- A weaker dollar makes it easier for international markets to buy U.S. goods and services.
- Second โ A weaker dollar, while making imported goods and overseas travel more expensive, has an upside. In general, it helps drive earnings growth for U.S. exporters and multinational companies with overseas operations. More specifically, a weaker dollar boosts the price competitiveness of U.S. goods and services. The profits earned in local currency are worth more in dollar terms when repatriated back to the U.S.
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- Top three global economies:
- U.S. GDP: $30.34 trillion
- China GDP: $19.54 trillion
- Germany GDP: $4.92 trillion
Source: World Bank, December 2024.
- Finally, and most important โ The U.S. remains the world's largest, wealthiest and most competitive economy, with innovative companies, a dynamic labor market and a strong and resilient consumer base. That's a rare and powerful combination โ one that continues to drive investment in dollar-denominated U.S. assets.
So, how should investors respond to the dollar's decline?
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Potential opportunities include:
- Technology
- Industrials
- Transportation
- Food & beverage
- Materials
For companies with revenues that come from outside the U.S., a weaker dollar can be a tailwind to their earnings. Investors may find potential opportunities in industries such as technology, food and beverages, industrials, materials and transportation.
In our view, what's really critical is to avoid making precipitous changes to your investment strategy in response to narratives predicting the downfall of the dollar or the U.S. economy. In the long run, we believe it is economic strength, not tariffs or other issues, that will drive the dollar's ongoing place in the global economy.
And that's the Market Decode.
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Important Disclosures
The opinions expressed are as of 7/17/2025 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
In the video above, Lauren Sanfilippo, senior investment strategist for the Chief Investment Office, offers context behind the dollar's fall and why the United States' position as global economic leader is unlikely to change. "The U.S. remains the world's largest, wealthiest and most competitive economy," says Sanfilippo. That combination, she adds, should continue "to drive investment in dollar-denominated U.S. assets."