TLDR:
- Gold returned 65% in dollar terms during 2025, outperforming the S&P 500’s 18% gain by 47 percentage points.
- European stocks beat U.S. equities by 23% while Chinese stocks exceeded American returns by 21% amid dollar flight.
- The dollar fell 39% against gold and posted double-digit losses versus euro and Swiss franc during the year.
- Nearly $10 trillion in U.S. debt needs refinancing as foreign demand weakens and valuations reach stretched levels.
Ray Dalio, founder of Bridgewater Associates, released his 2025 year-end market summary highlighting a fundamental shift in global currency dynamics.
The billionaire investor emphasized that dollar weakness dominated market movements last year, overshadowing the popular narrative around artificial intelligence stocks.
His analysis revealed that gold emerged as the best-performing major asset class, returning 65% in dollar terms compared to the S&P 500’s 18% gain.
The hedge fund manager pointed to upcoming political changes as potential catalysts for market volatility. He noted that the 2026 U.S. midterm elections could result in Republicans losing control of Congress.
This shift might reverse current economic policies and accelerate trends already visible in global capital flows.
Currency Devaluation Drives Market Performance
The dollar experienced broad-based weakness against major currencies throughout 2025. It fell 0.3% against the Japanese yen and 4% versus the Chinese renminbi.
European currencies saw larger gains, with the euro advancing 12% and the Swiss franc climbing 13% against the greenback. Gold posted the most dramatic appreciation at 39% in dollar terms.
Dalio explained that currency movements create optical illusions in investment returns. The S&P 500 delivered vastly different real returns depending on the investor’s base currency.
Euro-based investors saw only 4% returns, while Swiss franc holders gained just 3%. Most strikingly, gold-denominated returns showed the S&P actually declined 28%.
Foreign investors demonstrated clear preferences for non-dollar assets during this period. European stocks outperformed U.S. equities by 23%, while Chinese stocks exceeded American returns by 21%.
Emerging market equities as a whole returned 34%, substantially beating developed market benchmarks. These flows suggest investors are actively diversifying away from dollar-denominated holdings.
Federal Reserve Policy and Debt Concerns
The Federal Reserve’s monetary easing contributed to asset price inflation across markets. Rate cuts lowered discount rates and compressed risk premiums, supporting long-duration assets like equities and gold.
However, these moves left markets vulnerable to reversal. Ten-year Treasury bonds returned 9% in dollar terms but posted negative real returns when measured in stronger currencies.
Dalio highlighted concerning supply-demand dynamics in debt markets. Nearly $10 trillion in government debt requires refinancing in coming periods.
The new Fed chair appears likely to maintain an accommodative stance, pushing real interest rates lower. This policy direction conflicts with growing fiscal pressures and may steepen the yield curve further.
Credit spreads contracted to historically tight levels during 2025, leaving little room for additional compression. Equity valuations reached stretched territory, with the market discounting substantial future margin expansion.
Dalio calculated long-term expected equity returns at approximately 4.7%, barely below current bond yields. This leaves minimal equity risk premium for investors.
Political Shifts Threaten Policy Continuity
The Trump administration’s first year featured aggressive pro-capitalist policies including fiscal stimulus and deregulation.
These measures supported domestic manufacturing and technology sectors while increasing wealth concentration among top earners. However, the political calendar constrains how long these policies can continue.
Presidents typically lose congressional support after midterm elections, limiting their ability to maintain economic agendas.
Dalio observed growing opposition movements coalescing around income inequality concerns. Progressive politicians including Bernie Sanders and Alexandria Ocasio-Cortez are uniting behind anti-billionaire platforms.
This ideological battle over wealth distribution will likely intensify heading into the 2028 presidential election. The outcome could fundamentally alter corporate profit margins and tax policies.
Geopolitical changes added another layer of uncertainty to market conditions. The shift from multilateral cooperation to unilateral actions increased conflict risks and military spending.
Economic sanctions and protectionist measures reduced foreign appetite for U.S. assets. These trends supported gold demand while pressuring dollar-denominated investments across asset classes.
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