Quick Bite: Volatility and Uncertainty is Part of It
Author: Paul Zwi
The initial boost to markets fostered by Trump 2.0 have dissipated, with uncertainty and volatility replacing early optimism. The second Trump administration has been in office for only two months, but the whirlwind of tariffs imposed on America’s major trading partners, federal jobs cuts implemented by DOGE, and the disruption of longstanding Western democratic alliances have markets scratching their heads in puzzlement.
But one should retain a cool head and a calm demeanour – volatility and uncertainty is part and parcel of markets. It may disappear for a while, but it always comes back, and it should be expected and even sometimes embraced. Markets overshoot: that is their nature, and those who understand that can use it to their advantage.
Source: Topdown Charts
In the US, the Nasdaq is around 12% below its peak, the S&P 500 around 6% below its peak. The Australian index, the ASX 200, has fallen from 8555 to 7935, a decline of around 7%. None of this is unexpected. It is the nature of markets.
Now that Trump has started a trade war, it could escalate. Or it could de-escalate as concessions are made and deals done. We don’t know. Either way, uncertainty has increased. At the same time, interest rates have continued their decline, and the odds of more Fed rate cuts have increased, even though there is some evidence that inflation remains stuck above the Fed’s 2.0% target and the likelihood that tariffs will boost inflation.
Source: Yardeni Research
Trump’s tariffs and DOGE- job cuts are depressing US consumer confidence. Trump delivered on his promise to stop illegal immigration. Oil prices are falling as he promised, though that may have more to do with weak demand than more supply. Mortgage rates are falling. However, he promised to lower consumer prices. Instead, his tariffs will drive these prices higher.
We still anticipate the resilience of US consumers and the US economy. However, Trump Turmoil 2.0 is significantly testing the resilience of both. In Australia, the Federal Election expected in May likewise creates elements of policy uncertainty as the polls indicate high risk of no outright majority for either major party. We have to live with that, but in time, that uncertainty too will resolve.
Let’s remember that 5-10% corrections are common with markets. Even 10-20% corrections are almost part of the pattern every few years. And corrections of more than 20% are present in almost every decade of market history.
Source: Topdown Charts
