Commercial message: The last few days have brought significant uncertainty to global stock markets. If you are an investor or actively follow the financial markets, you have certainly noticed sharp fluctuations that are reminiscent of crisis periods from the past. Panic is starting to prevail in the markets. But is it justified? Are these declines really worse than those we experienced during the pandemic in 2020 or the energy and inflation crisis in 2022?
Let's take a closer look at the comparison of individual periods - not only in dollars, but also in euros and Czech crowns, which is often a key perspective for Central European investors.
More information on how to protect your portfolio and use the current volatility to your advantage, you will find out on Saturday XTB online trading conference.
Market declines in numbers: How does 2025 stand?
2020 – Global pandemic and shock sales
- The S&P 500 index has lost ground since its peak minihim approximately 35–36%.
- The EUR/USD exchange rate remained relatively stable during this time.
- From the perspective of a European investor, the decline was in euros approx. 35%, in Czech crowns even a little smaller – about 30%, thanks to the slight strengthening of the USD against CZK.
Year 2022 – Inflation, war and rising rates
- The S&P 500 fell by about 25%.
- At the same time, the dollar significantly increased by approximately 15%.
- This meant for European investors that their portfolio suffered in reality only about a 20% decrease – the stronger dollar partially offset the losses.
Year 2025 – Sell-offs and a Weakening Dollar
- The current decline in the S&P 500 index is approximately 21%.
- Dollar in recent weeks weakened by almost 10%.
- The result is that, in terms of euros or crowns investors are looking at losses of approximately 24% – and therefore greater decline than in 2022.
US500 (S&P 500) price development, weekly candles
Source: xStation
Past performance is not a reliable indicator of future performance.
Why does it hurt more this time?
Although this year's declines in dollars are not yet record-breaking, they appear significantly stronger for investors in Europe. The main reason is weakening of the US currency, which in the past often played the opposite role during crises – as a “safe haven” that offsets losses on stocks. But now this effect is missing.
Moreover, the current environment is accompanied by a high level of uncertainties:
- Threats of trade wars and new tariffs (e.g. statements by Donald Trump).
- Tensions in geopolitics (especially the Middle East, Taiwan).
- Question marks over the future development of interest rates and inflation.
All these factors contribute to nervousness in the markets, which is also aggravated by currency risk – an often underestimated, but very important element.
Why does the exchange rate matter?
The value of your portfolio depends not only on stock prices, but also on What currency do you invest in?If you hold US stocks in euros or crowns, the dollar exchange rate plays a crucial role.
Specific example:
- If stocks fall by 20% but the dollar strengthens by 10%, the real loss for a European investor is only around 10%.
- But if the dollar weaken, as at present, losses are multiplying.
That's why they're having sales this year greater impact on European investors, even though the American indices themselves are not yet at crisis levels minidown.
What should investors do?
The current situation leads to several important recommendations:
1. Watch the markets in your home currency
Evaluating developments only in dollars can be misleading. Convert your portfolio's performance to euros or crowns to get a realistic picture.
2. Consider currency hedging
For long-term investments, it may be advisable to protect yourself against currency depreciation – especially if you expect fluctuations in the EUR/USD exchange rate.
3. Diversify across regions and currencies
Investing not only in the US, but also in European, Asian and emerging markets can reduce overall risk.
4. Don't get carried away by emotions
Crashes are part of the market. History has shown that it is during crises that the best opportunities for future growth arise.
Summary
Although the current declines in US stock markets have not yet reached the depths they did during the 2020 pandemic, from the perspective of European investors – i.e. those who hold their investments in euros or Czech crowns – have come very close to them. The main reason is significant weakening of the US dollar, which multiplies real losses when converted into domestic currencies.
While the dollar strengthened in 2022 and mitigated the effects of the sell-offs, in 2024 it has the opposite effect and further increases the impact on the value of the portfolio. As a result, even a smaller percentage decline in US indices can have a much more dramatic effect in korunas or euros than the numbers suggest.
In such a volatile environment, it is crucial not only to monitor market developments, but also understand the broader context – especially monetary developments and the importance of diversificationStrategic thinking, the ability to remain calm and respond flexibly to new information are more important than ever in times of heightened uncertainty. Opportunities may arise right now that will be crucial to the long-term development of a portfolio.
If you are interested in how to effectively respond to the current market situation and protect your investments during increased volatility, Don't miss the XTB Online Trading Conference, which takes place this SaturdayYou will learn specific strategies, perspectives from professional traders, and expert analyses of current developments. Admission is free and more information can be found at: https://cz.xtb.com/online-trading-konference-2025.
Investing is risky. Invest responsibly.
