I occasionally chat with neighbors or friends about the stock market. I’ve been doing it a little more recently, because I’m curious about how people assess last year’s S&P and NASDAQ performance. Most people I see, who generally don’t pay much attention to stocks, say it was a great year.
The reality, though, is that the S&P 500 was the worst-performing major stock index in the developed world last year. And it’s starting off 2026 the same way–and that’s despite having (for now, anyway) the cream of the crop in technology. The main reason? The dollar has dropped through the floor, losing close to 15% of its value vs. other major currencies. That hasn’t been so horrible for tech, which has huge margins, but it has been a killer for any firm that has foreign currency costs and $US revenues. In addition, many companies serving the domestic market have been hit by tariffs, and have generally chosen not to pass on the entire cost to customers.
The figures over the past twelve months, in dollars, have been as follows:
EAFE (an index of major non-US markets) +28.9%
NASDAQ +23.1%
S&P +16.1%
The euro has gained 15% vs the $US, more or less accounting for all the difference.
Year to date, the results are similar, with EAFE +5.9% through today, NASDAQ +2.5% and the S&P +1.9%. The euro is +2.5% vs. the dollar.
A portfolio constructed to avoid net importers and favor heavy net exporters would likely have handily outpaced EAFE.
My guess is that the same will be true this year, as well, or at least until/unless Washington begins to work out what an economically threatening move ending Fed independence would be.
The reason, I think, is that the administration favors a weak currency and has depressed the value of the dollar by recreating the Federal Reserve of the 1970s, which was not an independent body back then but rather responded to the wishes of the Oval Office. The big currency trading firms are reading this as Washington’s desire to weaken the currency, enabling Washington to repay maturing Treasuries in future dollars that have the purchasing power of, say, $.80 today. So they are selling the dollar, as are foreign holders of Treasuries, who have such large Treasury positions they can’t offload them without taking a substantial loss.
This is also the thought behind the 86% rise in the price of gold over the past year.