With American financial markets suffering through a historic and unprecedented collapse, it is an early dark chapter in President Donald Trump’s young administration. As of April 21, the S&P 500 has dropped by 14%. This is the worst performance for any president in his first term since we started full tracking in 1928. Taken together, these developments paint a troubling picture for the country’s future economic trajectory and long-term investor confidence.
The crisis has not even been exclusive to the S&P 500. At other times, the Dow Jones Industrial Average has seen a record plunge. It collapsed 9.1% during the initial weeks of April, its worst month for that month since 1932. In fact, the only other April that could compete with this abysmal performance would be 1931. The dollar touched a three-year low on Monday — sending shudders down the spine of many traders and investors. One day’s worth of new park access does not begin to address their far-reaching worries.
Economic Growth Projections Deteriorate
The International Monetary Fund (IMF) published a deeply alarming staff report. It sounds an alarm about quickly decelerating economic growth, particularly in the United States. The signal of an unexpected inflation comeback has made things even more jittery for economists and investors, as we explain in our new report.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” – International Monetary Fund.
Amidst all that, the economic landscape is changing rapidly. During the first three months of Trump’s second term, oil prices lost almost a quarter of their value, plummeting nearly 24%. Traders are increasingly betting that demand for travel and shipping—anything that relies on transportation—will never recover, leading to major sell-offs in oil. As a result, US crude has hit its worst start to a presidential administration since former President Bill Clinton’s second term. This is an extraordinary reversal for the oil market.
In sharp relief, the MSCI All World index has skyrocketed 28.9% since Trump’s most recent ascendance to the Presidency. This index surprisingly does not include the United States. This divergence sheds light on the increasing peril for US markets, even as global markets increasingly brim with strength.
Rising Treasury Yields and Investor Sentiment
The impacts of stock market declines are being felt deeply. At the same time, the 10-year US Treasury yield has skyrocketed to 4.4%, a spike occurring only a month after falling below 4%. This growth is already beginning to indicate a change in investor sentiment as they reassess risks based on recent economic indicators.
Goldman Sachs CEO David Solomon commented on the prevailing market conditions, stating, “The level of uncertainty is too high. It’s not productive.” His comments embody a wider concern amongst financial executives about the permanence of any economic good fortune earned in the near future.
Despite those challenges, analysts noting it’s important to remember the historical context. The only worse beginning to a presidential term for the US stock market was in 1941 during the administration of the late former President Franklin Roosevelt. It fell by slightly more than 9% in its first 63 days of trading.
Market Reactions and Future Implications
As traders impatiently wait for calmer waters, American financial markets are meeting the uncertainty with risk-averse behavior. Declining stock prices and rising yields make for a painful combination for investors. For anyone looking for safety in their investment portfolios, the news is equally discouraging.
The IMF’s report does the naïve observer one better by arguing that the world economic order is changing fundamentally. The organization noted that the “April 2 Rose Garden announcement forced us to jettison our projections,” indicating that unforeseen events may have contributed to negative economic forecasts.