On a positive note, retail equity allocations have fallen from 70% to 66% since January. This decline is indicative of a broader change in investor sentiment amid a continuing volatile market. The Nasdaq index concluded April with a mixed performance, managing to remain unscathed despite experiencing significant fluctuations throughout the month. Global trade tensions continue to escalate, notably due to the continuing U.S. tariff round. Market analysts are closely watching all these changes.
As we will discuss below, the Nasdaq had a rocky ride in April. It plummeted a shocking 16%, but then it pulled off a miraculous reversal, rebounding almost 18%. Neither really came through on fully doing the job to stop their collective rollercoaster-shock ride which stopped the index dead at its 50 DMA. In the final minutes of trading, it rocketed again. This volatility is raising questions about the strength of the market’s recovery. Second, can it keep up the momentum in the face of political headwinds out of D.C.?
Global trade headwinds constitute significant downside risks for investors. The U.S. tariff cycle As the most important long-term crisis point, there is scant sign that U.S. policymakers will change course here. The Trump administration’s insistence on negotiating any trade accords under U.S. terms suggests that protracted discussions and reciprocal concessions are likely to continue. Consequently, confusion abounds, undermining investor certainty.
For all the madness that surrounds the current landscape, retail investors have stood firm by relentlessly continuing to pour money into the market. Yet their commitment rings hollow amid the shallow market depth that prevails today. It’s been stuck under $3 million, while illustrative averages are around $13 million. So retail investors are the heroes right now. The liquidity drought suggests keeping healthy trading volumes should prove to be an uphill struggle.
The trading performance of these ten busiest names should be deeply troubling enough. They now appear to act like sub-penny stocks. This abrupt transition is concerning for overall market stability and investor confidence as trading activity turns more speculative.
Our third surprise was the Bank of Japan (BoJ) decision to stand pat on monetary policy. This decision elicited these days a milder reaction in the FX markets than anticipated. The yen has come to symbolize this more cautious approach and thus looks overbought after suffering an unrelenting pounding from the dollar. Contrary to BoJ intentions, the yen immediately weakened sharply. This sent USD/JPY soaring, a good reminder of how quickly the markets can react to central bank decisions.
The U.S. yield curve still prices in close to 100bp of Federal Reserve easing. This is a good reminder of the wider economic picture as we look ahead. In fact, just yesterday, recent data indicated that factory purchasing managers’ indexes (PMIs) across countries were stumbling. The distress signals are blaring on both shipping and commodity flows. Surprisingly, oil had its worst month since 2021 in April, adding yet another wild card to an increasingly fraught economic reality.
As retail equity allocations plummet against this somewhat dour backdrop, the market continues to look for signals of improvement—or worse, a continuation of the downward trend. Investors are still trying to feel their way through a very foggy environment riddled with uncertainty. This crisis is the result of a perfect storm of domestic policy and international trade circumstances.