Market Volatility in Trump’s Second Term: A Historical Perspective
The onset of Donald Trump’s second term has been turbulent for the US stock market, marking the most challenging first 100 days for a new administration since Gerald Ford took office over 50 years ago. The S&P 500 has experienced a significant decline, plummeting more than 7.2% since Inauguration Day, raising concerns among investors.
Historical Context of Stock Market Performance
According to calculations by the Financial Times based on FactSet data, this steep decline parallels the market’s downturn during Gerald Ford’s presidency in the latter months of 1974. At that time, rising oil prices coupled with a recession induced a lengthy sell-off in equities.
Current Market Dynamics
The challenges facing Wall Street under Trump’s administration are largely attributed to his assertive trade policies. His administration’s imposition of tariffs has led to uncertainties regarding America’s economic expansion and inflationary pressures within the economy. David Kelly, chief global strategist at JPMorgan Asset Management, noted,
“We’ve decided to have a fight with every kid in the playground at the same time.”
Impact of Tariff Announcements
A barrage of trade-related communications from the White House has left many investors bewildered. After Trump announced tariffs on April 2, stock prices plummeted; however, a partial recovery occurred when many tariffs were shelved for a 90-day review period. George Pearkes, a macro strategist at Bespoke Investment Group, likened the market’s reaction to a character in a cartoon:
“My model for where we are is Wile E Coyote with his legs spinning in the air trying to figure out how big of a cliff we’ve just jumped off.”
Investor Sentiment and Market Predictions
The current market trend has surprised many financial analysts, who had anticipated robust growth under a Republican-led tax overhaul and deregulation. Recently, major banks have reduced their S&P 500 price targets amid a noticeable shift in capital flows away from dollar-denominated assets, as noted by Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. She stated that investors “have a right to feel exhausted.”
Foreign Investment Shifts
Foreign ownership of US equities reached a record share of 18% at the start of the year. However, since early March, international investors have sold off approximately $60 billion of these holdings, predominantly driven by European investors. This trend suggests a growing wariness about engaging with the US market amidst policy unpredictability.
A Sector in Decline: Technology Stocks
Technology stocks, particularly those in the “Magnificent Seven” such as Tesla, Alphabet, Nvidia, and Meta, have shown considerable volatility. Once seen as strong investments, they have become “crowded shorts” as investors shift their strategies. Analysts attribute this change to both tariff concerns and competitive pressures from emerging companies, including China-based AI startups.
Conclusion
Trump’s reactions to market fluctuations have often downplayed the ramifications of his tariff policies. Thierry Wizman, a global foreign exchange and rates strategist at Macquarie, commented that the president may evaluate his initial 100 days based on adherence to his policy promises, rather than the immediate financial outcomes.
