When asked whether he would prefer to be reincarnated as a president, pope or sports star, Bill Clinton’s strategist James Carville is famously quoted as saying he would choose to come back as the bond market, because 'you can intimidate everybody'.
In March this column discussed the idea of the ‘Trump put’ and how bad things might need to be before the President intervened to restore confidence to markets. Last week we found out. After a week of chaotic decisions and following what had become a tidal wave of criticism as economists sounded huge alarm bells over an imminent recession and financial crisis, the bond market spoke with the disorderly sell-off in long-dated US Treasuries, demonstrating a loss of confidence in the stability of US assets that suddenly became much more dangerous to the financial system than the recent sharp correction in equity markets. Trump’s put was the announcement of a 90-day pause on many tariffs.
Many economists take a negative view of tariffs, suggesting that they distort patterns of activity away from where goods are most efficiently produced and unsurprisingly, China’s President Xi feels that a global trade war will have no winners. Following recent events, uncertainty about the future path of policy will be even greater than before and will likely have the effect of paralyzing businesses who will be unable to make long term commitments for fear of making short term mistakes. Nobody knows what happens when the current tariff pauses come to an end, and it feels inevitable that the current chaos will lead to further wild swings in stock markets.
Those investors feeling brave enough to block out the short-term noise and trade in current markets will need to keep their wits about them. For many though, the current volatility will likely just be too much.
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
