The recent fiscal and monetary policies passed in the US administration have left investors and analysts on edge. Indeed, some have called the plan barmy, creating confusion in global markets. We all are aware that tensions are rising between Washington and Beijing. If implemented, these policies would drive the US economy directly into a recession.
In response, the European Union (EU) has made an unprecedented counter-move by enacting its own tariffs. Their proactive steps were taken even before President Trump and most everyone else stunned the world with a 90-day delay announcement. This retaliation shows the EU’s choice to fight, rather than take a wait-and-see approach. The conjunctural crisis has produced some of the worst volatility we have ever seen in financial markets. We observed acute volatility in the Treasury market, particularly as longer-duration yields took off to the upside.
Against this backdrop of boiling tensions, Wall Street proved surprisingly resilient, pushing firmly higher into the weekly close. Yet, this progress was made under a cloud of economic uncertainty that has sown doubt about the stability of future investments. Analysts will tell you that what’s needed to drive investment is confidence in the economic outlook and confidence in the stewardship of the companies.
The US administration’s approach to economic blocs could be straight out of any playbook featuring long-standing economic orthodoxy. China raised its tariffs on US goods in a brash retaliatory step that took the world by storm. They increased from 84% to a record high 125%. This behavior reinforces the impression that any future attempts to heighten trade conflicts will be more show than substance. As a consequence, it fosters a highly unpredictable climate.
The effects of the current climate on global stock markets have certainly made headlines. The FTSE100, for example, fell more than 1,000 points before touching a low of 7,539 earlier this week. The index has a hard time getting back over the 8,000 mark now, as it shows investors’ hesitation with still present tensions of trade war.
On the surface, it appears that the US economy is booming. A big drop in consumer confidence would be a setback to any planned growth. That kind of weakening sentiment would be alarming enough on its own. That would be a huge hit on the value of US workers’ 401(k) retirement plans. Global stock markets are already showing weakness. As many investors have realized, the long-term impact of today’s new economic normal remains to be seen.