The panic selling of U.S. stocks and bonds following the Trump administration’s ‘Liberation Day’ tariff bombshell may be over, but the re-rating of American assets is just getting started. The question is just how big this reallocation will be. Money managers are aware that even a modest reduction in exposure could have a potentially huge impact on asset prices. That’s both because of the sheer size of U.S. markets relative to total global assets, and the outsized nature of overseas investors’ U.S. holdings in nominal terms and as a share of their portfolios. In Treasuries, this overweight exposure is large; in equities it is massive. To illustrate the big impact that even small changes in allocations could have, it’s worth recalling some of the numbers involved here. For instance, the global pension fund industry, which is significantly overweight U.S. assets, is worth around $58.5 trillion. Foreign private sector investors have flooded U.S. markets in recent years, pouring a net $3.25 trillion into U.S. assets over the last three full calendar years, according to U.S. Treasury data. Consequently, America’s net international investment position is currently negative $26 trillion. U.S. stocks accounted for as much as 75% of the $80 trillion global market cap earlier this year. And at the end of last year, foreign investors owned 18% of U.S. stocks, a record-high share going back to 1945, according to strategists at Goldman Sachs. Additionally, Japanese and euro zone investors’ U.S. fixed income allocations comprise around 60% of their foreign fixed income holdings and about 15% of their total fixed income portfolios, according to strategists at Exante Data. European investors’ U.S. allocation has roughly doubled over the last decade, they note. Looking ahead, the concern is not that we will see blanket selling of U.S. assets by foreign investors or that the dollar will no longer be considered the world’s reserve currency. Those scenarios will probably not happen in our lifetimes. But we are likely to see modest shifts that could have major price impacts. Anecdotal evidence suggests some Canadian and European pension funds that have balked at the Trump administration’s trade, economic and wider policy agendas, have already started reducing exposure to U.S. assets. They won’t be the only ones. “I think the coming months will see global portfolios moderately reduce U.S. allocations, more so overseas investors than domestic U.S. investors,” says Rebecca Patterson, former chief investment strategist at Bridgewater Associates. If global investors do trim their U.S. holdings, there will be both a one-off hit to asset prices and a long-term reduction in upside potential because the level of future demand will be weaker. This will be mitigated if U.S. investors fill the gap. But that could be difficult. At the end of last year, U.S. households’ equity holdings as a share of their total assets and total financial assets were at record highs of 29.5% and 43.5%, respectively. Exante Data’s team notes that around 95% of U.S. investors’ fixed income holdings are already allocated domestically. The ‘anti-U. S.’ pendulum may have swung too far in recent weeks. Bank of America’s April global fund manager survey found that a record share of investors intend to cut their U.S. stock holdings, the U.S. corporate profit outlook is the gloomiest since 2007, and the outlook for the U.S. dollar is the most bearish since 2006. The risk premium on U.S. markets has risen, with bond yields up and the ‘term premium’ on the U.S. 10-year Treasury note the highest in a decade. And for good reason, given the volatility seen since President Donald Trump’s April 2 tariff announcement. Prices are adjusting, as they should. How long that adjustment will take and how deep it will be remains to be seen. The unmatched depth, liquidity and dynamism of U.S. financial markets are not in doubt. But in the new world order fast emerging from the Trump administration’s ‘America First’ drive, U.S. assets’ relative attractiveness certainly is.