Dalio's 2025 Annual Review: Why Purchasing Power Has Become the Real Story in Global Markets

While most people are still discussing how the US stock market and AI technology are creating wealth, global macro investment master Ray Dalio points to a deeper truth: what truly changes the wealth landscape is not the rise of US stocks, but the significant devaluation of various countries’ currencies relative to gold, and the resulting global asset reallocation. This change in currency value directly impacts everyone’s purchasing power and wealth transfer, and understanding this is key to grasping the 2025 market.

After systematically reviewing the past year’s market performance, Dalio highlights five major driving forces shaping the global landscape: debt and monetary dynamics, domestic politics, geopolitics, natural forces, and new technologies. Among these, the issue of purchasing power will become the most central political topic in 2026.

Currency devaluation is the fundamental reason for wealth transfer in 2025

The seemingly strong US dollar is actually depreciating. In 2025, the dollar’s value against gold plummeted by 39%, the largest decline among all fiat currencies. Not only the dollar, but all major fiat currencies experienced varying degrees of devaluation relative to gold: the dollar against the euro depreciated by 12%, against the Swiss franc by 13%, and against the RMB by 4%.

What does this mean? A core principle is: When a country’s currency depreciates, investments denominated in that currency will appear stronger than their actual performance. Measured in dollars, the S&P 500 rose by 18%, which seems good. But if measured in gold, a “hard currency,” the situation reverses— the S&P 500 actually fell by 28%. This is not just a numbers game but reflects real changes in purchasing power.

For investors holding different currencies, the same asset yields vastly different returns. For dollar investors, the S&P 500 returned 18%; for yen investors, 17%; for RMB investors, 13%; but for euro investors, only 4%; and for Swiss franc investors, just 3%. For those referencing gold, the return was -28%—a clear illustration of the importance of currency choice.

Bond investments face the same issue. The 10-year US Treasury, denominated in dollars, yields 9%, but when valued in gold, it results in a -34% return. When currencies depreciate, even nominal interest income looks good, but real purchasing power shrinks. This explains why foreign investors are losing interest in dollar bonds and cash—they are feeling the erosion of their purchasing power due to currency devaluation.

Looking ahead to 2026, a large amount of US debt will need refinancing, and the Fed seems inclined to further cut interest rates. In this context, the dynamics of currency and debt will continue to dominate global asset allocation. Investors ignoring currency hedging are quietly losing purchasing power.

Measuring in gold: US stocks actually down 28%, global asset reallocation reshuffled

Where do the best investment returns come from? Gold—denominated in dollars, gold’s return in 2025 reached 65%, outperforming stocks by 47 percentage points. This also explains why gold was the best-performing major asset in 2025—it not only outperformed equities but also protected purchasing power.

In contrast, US stocks appear dull in the global market. Specifically, European stocks outperformed US stocks by 23%, Chinese stocks by 21%, UK stocks by 19%, and Japanese stocks by 10%. Emerging market stocks had an overall return of 34%, emerging market dollar-denominated bonds returned 14%, and local currency bonds returned 18%.

This data reflects a huge trend: Wealth is flowing massively out of the US. Investors are increasingly reluctant to concentrate holdings in US assets and are accelerating diversification. This shift is driven by several major factors: US fiscal and monetary stimulus, the global distribution of productivity gains, and concerns over US foreign policy.

The strong performance of US stocks (measured in dollars) mainly comes from two sources: earnings growth and valuation expansion. Earnings growth is attributed 57% to sales increases (up 7%) and 43% to profit margin improvements (up 5.3%). The “Big Seven” tech giants, accounting for one-third of the market cap, saw earnings grow by 22%, while the remaining 493 stocks grew by 9%.

However, a noteworthy phenomenon is that profit margin improvements, while partly driven by technological efficiency, more importantly reflect that capitalists have captured most of the economic gains, leaving ordinary workers with a relatively smaller share. This imbalance in income distribution has become a significant source of political risk in 2026.

High valuations and liquidity traps: stock market returns in 2026 face challenges

The past is easy to understand; the future is hard to predict. But understanding causality can help us forecast the road ahead. Currently, the problem is: the price-to-earnings ratio is at a historical high, and credit spreads are extremely low. Based on current yields and productivity levels, the long-term expected return of US stocks is only 4.7%—a historic low, even below the 4.9% yield of bonds.

What does this mean? Stock risk premiums are extremely low. In other words, stocks no longer offer sufficient “risk compensation” relative to bonds. History shows that such valuation levels often foreshadow lower future stock returns.

A bigger concern is liquidity. Assets with lower liquidity, such as venture capital, private equity, and real estate, benefited during Fed rate cuts, but once financing costs rise, these sectors will face enormous pressure. If these entities are forced to refinance at higher rates, liquidity pressures could cause their prices to fall sharply relative to more liquid assets.

The current Fed policy and productivity growth are two major uncertainties. The new Fed chair seems inclined to suppress nominal and real interest rates to support asset prices, which could further inflate bubbles. While productivity is expected to improve in 2026, how much of that translates into profits, and how much is used for taxation or wage increases (an eternal debate between left and right), remains uncertain.

Purchasing power crisis will become the top political issue in 2026, sparking a wealth contest

If the economy is the stage for 2025, then politics is the star this year. The Trump administration’s domestic policies focus on revitalizing US manufacturing and AI technology through capitalist leverage. But a tough foreign policy has scared away some foreign investors, and concerns over sanctions and conflicts have driven diversification and gold purchases.

Deeper political crises stem from widening wealth gaps. The top 10% of capitalists hold more stocks and see faster income growth; they do not see inflation as a problem. Meanwhile, the bottom 60% are overwhelmed by inflation and declining purchasing power, feeling real economic pressure. This contradiction is fermenting.

A key observation is: The issue of purchasing power has become the top political concern in 2026. On January 1, Zohran Mamdani, Bernie Sanders, and AOC united under the banner of “democratic socialism,” signaling a new round of battles over wealth and money. This political struggle could lead to the Republican Party losing the House and sow chaos ahead of 2027.

As ordinary people start focusing on purchasing power, the political landscape often reshapes. Left-wing forces are trying to reclaim larger profit shares for higher taxes and wages, which will directly impact the sustainability of corporate profit margins—another key variable for future markets.

Accelerating de-globalization, AI bubble emerging: investors need diversified strategies

In 2025, the global order is shifting from multilateralism to unilateralism (power-centric). This shift triggers chain reactions: increased military spending, expanding debt, rising protectionism, and intensifying de-globalization. Against this backdrop, demand for gold strengthens, while demand for US debt and dollar assets declines.

In technology, the AI wave is currently in the early bubble stage. While AI has enormous long-term potential, current overvaluation, capital inflows, and sky-high expectations signal overheating risks. Investors need to stay alert and avoid blindly chasing the trend.

Investment insights: understanding market changes from multiple dimensions

In summary, debt and monetary dynamics, domestic political forces, geopolitical factors (military spending), natural forces (climate), and new technologies (AI) will continue to be the main drivers reshaping the global landscape. These forces generally follow the “big cycle” pattern.

For investors, the most critical skill is independent decision-making. Understanding the impact of currency on purchasing power, paying attention to valuation pressures and political developments, and maintaining diversified and flexible portfolios—these are not optional but essential. In an era where purchasing power is a focal issue, those who can adjust their asset allocations earlier will gain an advantage in the global asset reshuffle.