The tone in the U.S. stock market shifted abruptly. After opening higher overnight, major U.S. stock indices experienced a broad sell-off. The Nasdaq Composite fell nearly 1% at one point during the session, while the small-cap-focused Russell 2000 index dropped over 1%. The market ultimately closed lower across the board. Software stocks were particularly hard hit, with the iShares Expanded Tech-Software Sector ETF (IGV) closing down 2.55%. ServiceNow plunged more than 5%, and Salesforce tumbled over 4%. A Wall Street analyst warned that growing concerns about the impact of artificial intelligence (AI) are intensifying, suggesting the software industry could be eroded by AI-driven workflows, which may affect the sector's valuation multiples.
Meanwhile, the cryptocurrency market also faced a sharp sell-off. Bitcoin briefly fell below the $66,000 mark, declining over 4% at one point, before paring losses to a 1.74% drop at the time of writing. Ethereum and SOL both dropped more than 3%. According to data from CoinGlass, a total of 144,691 traders were liquidated globally in the past 24 hours, with total liquidations amounting to $458 million.
The market movements followed U.S. non-farm payrolls data that significantly exceeded expectations, leading traders to reduce their bets on Federal Reserve interest rate cuts this year. On February 11, Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, stated that due to ongoing concerns about persistently high inflation, the Fed should maintain interest rates at a "somewhat restrictive" level. He suggested that further rate cuts could allow high inflation to persist. Conversely, Federal Reserve Governor Michelle Bowman noted there are still several reasons to consider lowering rates.
Simultaneously, a significant development emerged regarding dollar-denominated assets. According to recent reports, Amundi, Europe's largest asset manager with assets under management of €2.8 trillion (approximately $3.2 trillion), indicated it will continue reducing its exposure to U.S. dollar assets, shifting focus towards Europe and emerging markets. The Financial Times quoted Amundi CEO Valérie Baudson stating that over the next year, Amundi will advise clients to reduce their holdings of dollar assets. She warned that unless U.S. economic policies change, "we will continue to see a weaker dollar." Baudson mentioned that for the past 12 to 15 months, Amundi has strongly advocated for investment diversification and advised clients to spread their investments, a strategy it will continue to recommend. Benefiting from a record €88 billion in net inflows for the year, Amundi also announced a €500 million share buyback plan.
Amundi is the latest major investment institution to explicitly state its intention to cut or hedge exposure to U.S. assets. In January, Sweden's largest private pension fund, Alecta, stated that due to the "unpredictability of the U.S. government and growing U.S. debt," it had sold most of its U.S. Treasury holdings over the past year. Baudson explained that initially, international investors hedged against dollar depreciation by buying gold, which largely explains the significant rise in gold prices during the same period. Subsequently, the firm observed a desire for diversification to address over-investment in dollar assets. The Financial Times reported that these capital movements are already driving flows into European and emerging market assets, including bonds and equities. Last year, emerging market equities experienced their best performance since 2017.
What is driving this aggressive selling? Recent data shows Wall Street investors are accelerating a shift towards international markets. According to Morningstar Direct, investors poured a net $51.6 billion into international equity ETFs in January, a significant increase in monthly inflows since the end of 2023. Analysis suggests this shift stems from high U.S. equity valuations, a weakening U.S. dollar, and new opportunities emerging in overseas markets, as investors bet that the U.S. market's leading advantage will narrow.
According to Amundi's forecasts, U.S. real GDP growth is projected to slow significantly to 1.6% by 2026, well below the nearly 3% level seen in 2023-2024. This deceleration is not due to cyclical inventory adjustments but is driven by deeper structural factors. First, private demand is drying up: Amundi believes the lagged effects of the high-interest-rate environment will eventually materialize, compounded by inflation eroding real purchasing power, causing the U.S. consumption engine to stall. Second, the marginal utility of fiscal stimulus is diminishing: although the U.S. deficit remains high, its contribution to growth is weakening, instead manifesting more as inflationary pressure and debt interest burdens. Finally, policy uncertainty: the unpredictability of U.S. tariff policies creates significant uncertainty for corporate capital expenditure outside of AI, suppressing investment appetite.
In this context, the dual advantages of U.S. dollar assets—growth superiority and interest rate differentials—are simultaneously fading. More critically, the correlation between the U.S. dollar, U.S. stocks, and U.S. Treasuries is undergoing a fundamental reversal. Historically, when U.S. stocks fell, the dollar often rose due to its safe-haven status, providing a natural hedge for international investors. Now, however, due to concerns about U.S. fiscal sustainability, the dollar is beginning to move in tandem with risk assets: when U.S. Treasuries are sold off (yields rise), the dollar does not strengthen as expected but weakens due to credit concerns. This means the dollar is no longer a stabilizer for investment portfolios but has become an amplifier of volatility.
Amundi's call to reduce U.S. asset exposure has found resonance with other major asset managers. U.S. bond giant Pimco stated last month that "unpredictable" policies associated with former President Trump are pushing markets into a phase of "diversifying away from U.S. assets" over the coming years. Natasha Brook-Walters, head of the $70 billion multi-asset strategies team at Wellington Management, said she is expressing concern about the dollar by buying other currencies such as the euro and Australian dollar. She added, "We are optimistic about emerging markets and increased long positions at the start of the year." Becky Qin, a portfolio manager at Fidelity International, stated that she has "significantly reduced" dollar exposure within her $7 billion portfolio and added that she "still expects the dollar to weaken."
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