The Real Threat to Markets Isn’t Tariffs. It’s This.

Most investors are blaming Trump’s tariffs for the recent market sell-off. But if we look beyond the headlines and follow the actual market signals, a different — and far more serious — picture emerges.

Yes, stocks are down, and that’s what everyone is focused on. But what’s more telling is that U.S. Treasury bonds also fell — which breaks the usual rule of market behavior. Traditionally, when stocks tumble, investors flock to Treasuries as a safe haven. This time, they didn’t. The classic stock-bond diversification strategy failed (not the first time.)

Even more concerning: the U.S. dollar is weakening sharply. Against the euro, the dollar has lost 4.5% over the past month — a huge move in the currency markets. This creates a triple whammy for foreign investors in U.S. assets:

🔻 Stocks down
🔻 Bonds down
🔻 Forex losses

Meanwhile, gold prices are surging, as expected when the dollar weakens. Since gold is priced in USD, it takes more dollars to buy the same ounce when the currency devalues. Gold has always served as a hedge against dollar debasement — and investors are clearly moving in.

A more surprising shift: Bitcoin has decoupled from tech stocks. It has historically behaved like a risk-on asset, moving in tandem with high-growth tech names. Not this time. As tech stocks fall, Bitcoin is rising — signaling that some investors now view it as an alternative store of value, alongside gold.

In short, we’re witnessing a broad selloff in U.S. assets — and a flight to alternatives. The key question now is: what’s really driving this shift?

Issue #1: The U.S. Creditworthiness Remains in Question

Media outlets point to China and hedge funds dumping Treasuries, blaming them for the bond selloff. Perhaps partly true — but not the full story.

• Foreign investors only hold about 31% of U.S. Treasuries.
• China’s share is around 2%, and hedge funds are a fraction of institutions’ holdings.

Even if they’re selling, it’s unlikely to cause a lasting crisis. The deeper issue is structural.

Roughly $10 trillion worth of U.S. debt is maturing in the next 12 months — about one-third of all outstanding marketable debt. That means the U.S. government needs to issue fresh bonds to roll over this debt. But here’s the catch: Who’s going to buy these new bonds when the U.S. is antagonizing allies with trade tariffs and projecting fiscal instability?

If demand dries up, bond prices fall, yields rise, and the government’s borrowing costs skyrocket. Higher yields also scare off future buyers, creating a vicious cycle of rising debt costs and falling confidence.

This is likely why Trump is pressuring the Fed to cut rates — to reduce refinancing costs. But the Fed can only influence short-term rates. Longer-term yields are driven by market trust — and right now, that trust is eroding.

To make matters worse, the debt ceiling crisis is back. The Congressional Budget Office recently warned that the U.S. could default as soon as August 2025 if the borrowing cap isn’t raised. If that happens, it’s game over for investor confidence.

Unless the U.S. restores faith in its creditworthiness — by stabilizing bond yields and the dollar — the stock market will remain under pressure.

Issue #2: Threats to Fed Independence Are Threats to Capitalism and Democracy

Trump has openly threatened to fire Fed Chair Jerome Powell, accusing him of not cutting rates fast enough. This raises serious red flags.

The Federal Reserve is supposed to be independent for a reason:

• Monetary policy must serve the economy, not the election cycle.
• Cutting rates for political gain undermines long-term stability.
• Policies like interest rate decisions often outlast presidential terms and must be guided by economic data — not polls.

The segregation of powers is a fundamental principle of U.S. governance. If a president can fire the Fed Chair for political reasons, it sets a dangerous precedent — and undermines democracy itself.

Even more importantly, U.S. stocks, bonds, and the dollar are global trust assets. Their value is based on faith in an institutional, rules-based system. Remove that foundation, and the entire edifice cracks.

If monetary policy becomes politicized, markets won’t just worry about inflation — they’ll start to see the U.S. economy as rigged. That’s when capital flees:

• Treasuries get dumped
• The dollar weakens further
• Gold and Bitcoin surge

That’s exactly what we’re seeing now.

Things May Not Be as Bad as They Seem

I don’t mean to sound alarmist. While these are serious structural issues, they are not irreversible.

Just recently, Trump backed down from firing Powell, saying he had no intention of doing so. That’s a positive sign — it shows he can course-correct.

But the bigger challenge remains: restoring confidence in the U.S. bond market and currency. Until that happens, the stock market will struggle to regain its footing.

I’m bearish, but still hopeful. And buying stocks when you feel fearful is often the right time to do it.