Mercer reports a significant shift in client portfolios away from U.S. markets

A wave of clients are shifting away from U.S. assets as investors react to President Donald Trump’s trade and interest-rate agenda, according to Mercer LLC.

The consulting firm says concern over tariffs, pressure on the Federal Reserve, a swelling budget deficit and the risk of a softer dollar are pushing money to Europe, Japan and other markets.

Hooman Kaveh, Mercer’s global chief investment officer, said a rising share of the firm’s 3,900 clients, together overseeing about $17 trillion, are reducing U.S. exposure.

The opening weeks in the early phase of Trump’s second term “has been a trigger for genuine diversification,” he noted in an interview this week. “We’re certainly seeing that in client portfolios where flows are toward diversifying markets, geographies, asset classes, currencies.”

Market nerves were evident in early April after Trump’s “Liberation Day” announcement, when both U.S. stocks and Treasuries fell before rebounding. Even so, U.S. shares have trailed many overseas benchmarks in 2025 for dollar-based investors.

Kaveh said investors are struggling to price the tariff path because the effects can cut two ways: either squeeze company margins or get passed through to consumers and lift inflation.

“If you have a situation where tariffs are going to push prices up, and the weaker dollar potentially can increase inflation, that would cause the Fed much more of a challenge to cut rates,” he added. As mentione in a Bloomberg report, he called the White House’s preference for a weaker dollar “the Achilles heel to the current approach” since it can magnify the inflation impulse from tariffs.

Where the money is going

Trump’s repeated criticism of Chair Jerome Powell, saying he has been slow to lower borrowing costs, along with the president’s move to fire Governor Lisa Cook, is further encouraging clients to step back from the U.S., according to Kaveh. “The politicization of the Fed is putting the Fed in the corner,” he noted. “The single-minded focus on inflation and employment now is being blurred. It’s not good news. It does advocate for diversification.”

Mercer sees clients increasing allocations to stocks in Europe and Japan, where prices are viewed as more appealing relative to the U.S. The firm is also seeing steady interest in private markets, including venture funds tied to the artificial-intelligence build-out. “The majority of our clients seem to think that AI will be a very significant driver of the macro environment over the next five-to-10 years,” Kaveh said.

Trump’s attacks on Powell blamed for market jitters

Adding to the debate, Bundesbank President Joachim Nagel on Wednesday warned that curbing the U.S. central bank’s independence could backfire, lifting long-term borrowing costs and inviting similar political pressure elsewhere. Trump has stepped up demands for aggressive rate cuts, sought to dismiss a Federal Reserve governor and is weighing whether to replace Powell.

“If the Fed’s independence were to be permanently undermined politically, the consequences would be serious,” Nagel said in Frankfurt.

“This would endanger the economic and financial stability and prosperity of the U.S.” He praised Powell’s handling of the confrontation but cautioned that any doubt about the Fed’s commitment to price stability could push yields higher at the long end of the curve, even if policymakers cut rates at the short end.

“There were indications that the attacks on the Fed contributed to a steeper U.S. yield curve on corresponding trading days: lower yields at the short end and higher yields at the long end,” Nagel said. “This shows that the financial markets certainly understand the importance of central bank independence.”

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