While U.S. investors have benefited from the S&P 500’s roughly 8% year-to-date gain, foreign investors —particularly those in Denmark — have seen much of that performance offset by a weakening dollar.
However, the recent trade agreement between the E.U. and U.S. on a basic tariff of 15% on European good imported into the US was received positively by PFA, Denmark’s biggest commercial pension company.
“Investors are taking Trump’s shifting tariff announcements much more calmly than before,” said Tine Choi Danielsen, chief strategist at PFA, in a press release. “We’ve seen that the threats are often withdrawn or watered down before they become reality. This has provided a significant boost to the stock markets, which have also benefited from a strong start to the U.S. earnings season.”
Despite the improved tone, the political backdrop remains volatile. Last week, markets were briefly rattled by the rumor that U.S. President Donald Trump might seek to remove Federal Reserve Chair Jerome Powell, highlighting the sensitivity investors still have to tensions between the White House and the central bank.
“The S&P 500 plunged significantly within a few hours when it was rumored that Trump intended to fire Powell,” said Danielsen. “Although the markets have become more resilient, this shows how highly investors value the independence of the central bank.”
Trump has continued to publicly criticize Powell, arguing that the Fed’s reluctance to lower interest rates is stifling growth. The Fed, for its part, has signaled that it must balance short-term stimulus needs with inflation that remains slightly above its 2% target, all while navigating the uncertain economic implications of the administration’s trade policies.
The U.S. dollar has fallen by nearly the same amount against the Danish krone, eating into returns once converted.
“The dollar is at its lowest level against the Danish krone in the past three years,” said Danielsen. “So, even with impressive stock returns in the U.S., the gains have been more modest for Danish investors.”
PFA, which manages pension assets for Danish savers, has taken steps to hedge against currency risk. “At PFA, we have continuously protected our customers against the risk of a weaker dollar, and this has contributed positively to returns,” she said, adding that the average return for a typical PFA customer stands just below 5% as of early August.
Looking ahead, Ms. Danielsen remains cautiously optimistic but acknowledges the potential for turbulence. “We’re working with a broad range of scenarios,” she said. “This year’s returns could land anywhere between 0% and 10%, depending on how these uncertainties evolve.”
