A Trump Trampoline: Bouncing the Market

It’s been over three weeks since he announced reciprocal tariffs which sent global financial markets into a correction. Since then, there has been a clear trend; from initially fearing the worst, now markets are hanging on every word from administration officials hoping for signs that the most negative impacts might be averted.

The Nuance

So, what happened this week? In summary, markets went down, markets went up, and then markets went flat, with all market moves based on messaging from Trump and his administration.

The markets started the week down: Whilst many people enjoyed a reprieve from Trump with a long weekend, markets didn’t. On Monday, there was a large sell-off in US markets, c.-2.4%. This was prompted by Trump undermining the chair of the US Central Bank (“the Federal Reserve” or “the Fed”). He called Jerome Powell, a quote-on-quote “major loser”, on his prime communication channel Truth Social (Trump’s social media brand), and questioning the future independence of the Federal Reserve. The president of arguably the world’s most important economy undermining the chair of their central bank is not a good look, especially as investor confidence in the stability of US assets has been waning.

Then, markets went up: Global equity enjoyed a relief rally mid-week, as Trump back pedalled on his criticism of Powell. Yes, markets are teetering on Trump’s every word.

After the rally on Wednesday, markets have been relatively stable for the remainder of the week. They continue to move higher on hints of further tariff concessions, pending “deals”, and a greater likelihood of a rate cut from the Fed. We note that tariffs have merely been paused, they haven’t gone anywhere, and they are still at the forefront of investor’s minds. So, it’s hard to reignite investor confidence to what it was pre-tariffs, when they are still hanging over investor’s heads, and certainly when there is no certainty of what is around the corner with Trump and what he will say next. What is clear is that any indication that Trump is softening his stance on tariffs is giving the markets a reason to rally.

It’s important to note that we are in the beginning of the quarterly earnings season, where companies post their profits and outlooks. Amidst all the volatility at the moment, companies around the world are reporting their quarterly financial results, with their outlook shining a light on the impact of previous Trump trade policies. The theme? There’s no confidence on the street, as the outlook is so uncertain. Many executives of American corporations, and companies with a high cross border exposure are warning of rising costs, disrupted supply chains, and broader economic consequences for the United States. Perhaps this could influence the Trump administration’s tariff resolve as Trump is a businessman at heart. But as we said earlier, no one knows Trump’s next move.

As of the time of writing, markets ended the week materially higher, hopeful (along with the rest of the world) that there may be a 'thaw' in the trade war. We can only wait and see.

During periods like this, long-term investors would do well to remember: Don’t get burned by reacting impulsively to recent trends or being swayed by short-term market movements. As the market slowly settles, staying grounded in long-term thinking makes all the difference.