A recent report from Bank of America highlights a notable correlation between the movement of the U.S. dollar, pressures in U.S. financial markets, and President Trump's public approval ratings. Since Trump took office, the U.S. dollar index has declined by approximately 10%, while his approval ratings have similarly trended downward. Strategist Michael Hartnett, in his widely followed Flow Report, noted that in theory, a weaker dollar policy should stimulate economic vitality by boosting manufacturing in swing states such as Pennsylvania, Michigan, and Wisconsin. However, the reality presents a stark contrast—during Trump's two presidential terms, his approval ratings and the dollar index have shown a "highly positive correlation." Downward pressure and volatility in risk assets currently facing Wall Street are unlikely to find meaningful support or relief until Trump's approval ratings show a substantial rebound. This perspective directly links geopolitical poll data to market risk appetite, reflecting investors' heavy reliance on U.S. policy execution and future economic certainty.
A review of recent market dynamics reveals that this correlation stems from a reassessment of the "Trump policy premium." Following the 2024 election, market expectations of aggressive tax cuts, fiscal expansion, and pro-growth policies under the new administration drove a significant rally in the dollar index and lifted U.S. stock valuations, with fund managers' growth expectations reaching a four-year high. However, since early 2026, due to shifting policy environments among major economies and debates over Federal Reserve rate-cut expectations, the dollar index underwent a noticeable technical correction by the end of January. At this point, fluctuations in approval ratings have been interpreted by the market as public feedback on the effectiveness of current economic governance, prompting profit-taking in the previously overcrowded "strong dollar trade."
Bank of America further analyzes that the market is currently in a painful adjustment phase, described by Hartnett as "peak positioning and peak policy." On one hand, investors are closely watching how the Trump administration balances the contradiction between a strong dollar policy and its tariff and industrial revitalization plans. The nuanced relationship between Treasury Secretary Besant's stance on dollar valuation and the White House's protectionist tendencies has made political approval ratings the most direct barometer of market confidence. On the other hand, as inflationary pressures erode the purchasing power of ordinary citizens, market sentiment has begun shifting toward "going long on the real economy and shorting Wall Street assets." This logic suggests that only when policy directions effectively boost the core base of public support can confidence in U.S. "economic exceptionalism" bottom out and rebound.
Looking ahead, the dollar's pricing power stands at the intersection of macroeconomic monetary policy and domestic political trust. Although the Fed still holds mid-2026 rate-cut expectations, the trajectory of Trump's approval ratings will determine the sustainability of capital flows.
Hartnett and his team believe the market remains deeply mired in a painful adjustment phase driven by "peak positioning, peak liquidity, and peak political factors," with weak political support suppressing risk appetite and accelerating the unwinding of previously crowded trades. Hartnett wrote in the report, "Until Trump addresses affordability issues through policy shifts and thereby boosts his approval ratings, we will adopt a long position on real assets and a short position on financial capital." The strategist characterized the current market pullback as a "healthy and overdue adjustment" and predicted that key technical support levels for so-called "bubble assets" are likely to hold firm.
Specifically, these technical support levels include: technology sector ETFs around $133, Bitcoin near $58,000, and gold around $4,550 per ounce. He noted that recent trends reflect a "painful price collapse in long positions of financial capital (tech mega-caps, cryptocurrencies, precious metals) relative to short positions (small-cap stocks, consumer staples, energy stocks), driven by three factors: peak positioning, peak liquidity (reduced rate-cut expectations, increased hike expectations), and peak politics (low approval ratings for the stock-market-friendly Trump)."
Beyond short-term volatility, Hartnett suggested a broader leadership transition is taking shape, shifting from "American exceptionalism to global rebalancing," making international equities, Chinese consumer sectors, and emerging market commodity producers the "best investment targets for 2026."
Regarding recent fund flows, Bank of America data for the week ending February 4 shows: one-year market fund inflows of $87.2 billion, equity fund inflows of $34.6 billion, and bond fund inflows of $23 billion. Gold saw its first weekly outflow since last November, totaling $800 million; cryptocurrency funds experienced redemptions of $1.5 billion, the largest since late 2025. By region: U.S. stocks saw a second consecutive week of inflows at $5.8 billion; European stocks recorded their largest weekly inflow since April at $4.2 billion; emerging markets saw inflows of $7.8 billion; South Korean stocks saw a record weekly inflow of $5.2 billion. By sector: technology funds attracted $6 billion in inflows, energy funds saw $4.2 billion in inflows, while utilities funds experienced their most severe outflow in months.