One thing we promised with the Trump Administration at the beginning of the year was market volatility and we have seen that. The last 5 weeks have witnessed one of the sharpest declines in global stock markets and then witnessed one of the sharpest recoveries.
The decline was triggered by the very real Trump Liberation Day tariffs which threatened global trade and looked like it was going to cause both a US/global recession and US inflation also – a definition of ‘stagflation’: A recession as consumer sentiment soured and export jobs lost and inflation as US imports became more expensive with US domestic producers using the opportunity to raise prices.
When stock markets fall, often investors buy the safety of bonds with prices going up / yields falling. But US Government /Treasury bonds yields rose sharply instead, as well as the US Dollar weakening, as global investors started to lose confidence in the financial prudence of the US Government.
With the US stock market and US Dollar crumbling, and an alarming rise in US Government bond yields, making it more expensive for the US Government to fund its very large deficits – Trump ‘blinked’ – via immediately initiating trade talks with multiple countries and already making Trade Agreement with both the UK and, more importantly, China.
So, in terms of the US S&P 500 index and the NASDAQ index ( as roughly a proxy for the rest of the world) we’ve seen a 20/25% stock market fall and a 15/20% rebound. But note, the sheer panic in the markets and the swings in investor sentiment have been quite extreme.
Other recent trends:
GOLD as a safe haven asset, in real demand reaching an all-time-high of US $ 3,500 an ounce and setting back to $3,250 at the time of writing.
OIL prices struggled at $65 per barrel as the outlook for the global economy is still muted.
EUROPEAN stock markets, including the UK, outperforming the US on the rebound as investors have an increased appetite for diversification away from the US.
The US FEDERAL RESERVE undecided in the next move in interest rates (currently 4%) awaiting developments.
CONCLUSION: The US stock market has recovered a lot of lost ground but confidence in the US stock market, economy and President has been significantly undermined by recent events. We probably won’t see those low panic orientated prices again this year but investors are likely to want a risk premium for investing in US assets going forward – so significantly higher prices from here could be hard to achieve also.
