February 2026 Commentary: Effects of the Changing Global Order

By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors

The beginning of this presidential term has been defined by a dramatic departure from the status quo and a shifting of the global economic order. While the US Dollar still enjoys reserve currency status and our capital markets are still the most dominant in the world, we have clearly entered an environment of reduced trust from both our enemies and allies. With that reduced trust has come a weaker dollar and reduced demand for our debt. The chart below shows the US Treasury holdings of foreign central banks compared to an inverted chart of the US Dollar (DXY) and an inverted chart of the price of gold, demonstrating how central banks have been diversifying from US Treasuries to assets like gold since Liberation Day. Source of below chart: Strategas Research Partners LLC

A falling dollar sounds like a negative outcome, but it is a key goal of the administration’s economic strategy, along with the goals of stronger domestic growth and lower interest rates. In theory, a weaker dollar should reduce our trade deficit by making American-made products more attractively priced and foreign goods more expensive, thereby boosting our manufacturing and economic growth. Tariff announcements were the first major policy move to close the trade deficit, and the One Big Beautiful Bill Act was the next push to continue incentivizing manufacturing through tax breaks.

One of the keys to this strategy’s success is to not let the trust of our trading partners get so low that the de-dollarization push becomes extreme. While a weaker dollar can help keep our markets competitive, a dollar that’s too weak can reduce our global financial leverage and lead to forced selling and downward price pressure on our assets. Foreign investors might demand higher interest rates to lend money to our government, which would make it even more expensive to fund our national debt at a time when nearly a fifth of our tax revenue is already being spent on interest payments. The administration is heavily incentivized to avoid such a drastic flight from the dollar, so we doubt we will reach that level, but it is a fine line to walk.

Price action at the end of January showed that the move from the dollar to commodities may have been overdone in the short term, but we see longer-term trends in place that will keep us from returning to the levels seen in the previous administration.

Another factor to consider is that making imports more expensive while pursuing stimulative policy has the potential to be inflationary. The key to threading that needle will likely need to be an increase in productivity, especially since we are already near full employment. The president has been very accommodative to the development of artificial intelligence and automation in hopes that they could become a major source of productivity gains.

The S&P 500 returned 1.5% in January and the Bloomberg US Aggregate Bond Index returned 0.1%. The Federal Reserve chose to keep rates in the 3.5-3.75% range, and President Trump nominated Kevin Warsh for the chair position. Warsh has a hawkish reputation and intends to shrink the Fed balance sheet, but he has been supportive of cutting rates in 2026.

Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions. Source of charts below: YCharts, Inc.