The long-anticipated tariff announcements have finally landed, and markets wasted no time in responding. Framed as the Trump administration’s first major shift in trade policy, the move aims to bring manufacturing back to the US, but not without ruffling feathers among key trading partners.
Given recent market movements, we want to provide some context on what’s happening and answer some questions that you may have.
While headlines may appear unsettling, it’s essential to remain focused on broader market trends and opportunities.
The optimism that followed Trump’s re-election has faded – at least for now.
His administration is prioritising tariffs and spending cuts (austerity) over tax reductions and deregulation (growth), adding uncertainty to financial markets and weighing on investor sentiment.
The recent volatility in the stock market has become a major talking point. After six months of unusual calm, the past week has seen significant fluctuations.
It’s important to put these movements into perspective.
Increased economic optimism and robust corporate earnings have propelled stock markets to new heights. Yet, this rapid growth has left some investors apprehensive about potential overvaluation, while others fear missing out on gains.
The recent failure of Silicon Valley Bank (SVB) warranted the attention of investors, given the size and speed at which its deposits were withdrawn ($40B within 36 hours – 25% of their deposit base), highlighting vulnerabilities to the banking sector, notably with smaller regional banks.
This week, the AAII’s Bearish Sentiment reading crossed above 60% (extreme) for only the 5th time in its 35-year history. The last time it happened was March 5th, 2009. The AAII survey tracks short-term investor sentiment (six-month).
Over a 6-week period in June and July, global equities rallied +14% on speculation the FED would slow down their rate hikes; however, this was not the case (yet), and global equities swiftly retreated -6% over the last few weeks.
Just yesterday, the ASX200 gained +1.8% post a news conference from the RBA Governor, which seemed to portray a reduction in future rate hikes from +0.50% to +0.25%.
The financial system has taken a small but noticeable exhale, most notably in the U.S. with equities and bonds rebounding from their June lows.
Some are calling this a pivot party, with the prospect of softening inflation data and, therefore, interest rate expectations placing a temporary floor under asset prices.
Recent financial market developments have many investors understandably nervous.
Tackling price inflation through higher interest rates has become a global phenomenon. Tighter than expected financial conditions indicate a meaningful economic slowdown, and recent equity market weakness reflects this.
