Source : THE AGE NEWS
By Alexandra Semenova, Esha Dey and Carmen Reinicke
Any other time, it would have been a signal that the worst of the sharemarket’s slide is nearing an end, one that would have set off buy signals at trading desks across Wall Street.
Yet as the S&P 500 Index on Wednesday flirted with its first back-to-back gains of more than 2 per cent since October 2022, it didn’t set off a surge of optimism – or even much relief. Instead, it underscored a new reality that’s been confounding investors for weeks: all the price moves now – the sudden surges and the stomach-churning tumbles – are being driven by White House policies that seem to shift constantly and with little to no forewarning, making it nearly impossible to predict where stocks, bonds or the US dollar will go next.
The misinformation has left traders flummoxed.Credit: Bloomberg
“This is very frustrating,” said Jay Woods, chief global strategist at Freedom Capital Markets. “Every day is just uncertainty, uncertainty, uncertainty. We expect one thing to happen, and then another thing happens.”
Wall Street veterans are used to rapidly adjusting to unexpected turns of events, as was the case in recent years when inflation soared or when the US economy powered past the subsequent steep interest-rate rises by the Federal Reserve.
But three months into Trump’s second term, he has single-handedly driven the type of dizzying financial market reversals usually reserved for crises like the bursting of the real estate bubble or the onset of the pandemic. In this case, though, rather than a complex shock that traders race to model, it’s stemming from his willingness to gamble with the economy by trying to retool the rules of international trade and to push the bounds of presidential power, as he did last week by lashing out at Federal Reserve chair Jerome Powell for not cutting interest rates.
‘All we’ve done [in the latest rally] is go back to where we were before the news that Jerome Powell could be on the chopping block.’
Keith Lerner, co-chief investment officer of Truist Advisory Services
That in turn has scrambled some of the usual signals. The US dollar has severed its normal ties to Treasury yields, falling even when those rates have risen as nervous investors shifted cash overseas. Stocks and bonds have often moved in tandem. And in equities, shifts among sectors have been largely swept aside by the broader market moves, with at least 70 per cent of the stocks in the S&P 500 moving in the same direction each day this week.
“Markets are wildly trading off of policy,” said Marko Papic, BCA Research chief strategist. “Which is a fancy way of me saying they’re trading off of tweets.”
The sharemarket’s latest advance was set off by another shift from Trump, who unnerved markets late last week by lashing out at Powell for not cutting interest rates and asserting that he had the power to oust the central bank chief if he wanted. When US markets opened on Monday, stocks and long-term Treasury bonds tumbled, reflecting fears that he could install a loyalist who would ease monetary policy prematurely to boost the economy.
Trump on Tuesday pushed back on those concerns by saying he had no intention of ousting Powell. He also indicated the US would be willing to dial back its steep tariffs on China if a deal could be reached with Beijing, sowing optimism that some of the economic fallout from his trade war might be reversed.
On Wednesday, the S&P surged as much as 3.4 per cent on hopes for a trade-war de-escalation. That put it on track for its strongest two-day run since 2022 before it gave back a good share of the gains after Treasury Secretary Scott Bessent tempered that optimism.
The volatility has created a gulf between professional money managers who have shifted to the sidelines and individuals who have been snapping up shares, betting on a rebound.
Institutional and hedge-fund clients at Bank of America were net sellers of US stocks in the week ended last Friday, according to the firm’s latest client flow data published on April 22, while individual investors were net buyers, echoing the trend over the prior two weeks. In fact, the retail investors have added to their US equities exposure for 19 straight weeks, the longest start-of-year buying streak in BofA’s data history since 2008.
On Wall Street and overseas, though, Trump’s policies have eroded confidence in a US economy that had long powered much of the world’s growth. His punitive tariffs – many of which have been paused temporarily to peruse negotiations – have created widespread anticipation that the economy will slow as business supply chains are disrupted and consumers brace for a potential inflationary shock.
Without any clear sense of where the policies will settle though, Wall Street analysts have been unable to predict what the impact will be on corporate earnings or the bottom line. At the same time, Trump’s fiscal plans have weighed on the Treasury market, driving up long-term yields on concerns his policies will wind up increasing the deficit and erode confidence in US debt.
But any of that is further down the road. On Wednesday, as the stocks were paring their gains, Keith Lerner, co-chief investment officer of Truist Advisory Services, had little faith any rally would last.
After all, the S&P 500 was only back to where it was last week, before Trump raised fears that he was poised to assault the Fed’s independence.
“The market rally is a relief,” he said. “But all we’ve done is go back to where we were before the news that Jerome Powell could be on the chopping block.”
Bloomberg
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