As Donald Trump’s policy proposals shift and evolve, it’s sending the markets into a panic. Consequently, investors are increasingly looking to hedge themselves against downside uncertainty. This year alone, the Trump administration’s unpredictable choices have sent markets on a rollercoaster ride, triggering jitters among analysts about what they could mean for overall economic stability. The recent fiasco over Greenland has only deepened the muddle. When Trump first floated the idea of buying the territory, it sent experts scrambling to warn him away.
The circumstances have resulted in broad declines successively on Wall Street. After a wobbly tap dance, stocks and bonds snapped back nicely to close the week. At the same time, the U.S. dollar declined significantly, and gold prices rocketed to all-time highs. On Tuesday, the S&P 500 suffered its worst day since October as recession fears gripped investors. It made a big recovery on Wednesday, its biggest advance since November. This spurious behavior highlights the continued chaos fueled by Trump’s volatile trade policy and free-wheeling, personal diplomacy with world leaders.
Mixed Market Reactions
U.S. markets were closed on Monday in observance of Martin Luther King Jr. Day. When trading opened back up again, it had some of the biggest swings ever. On Tuesday, Trump celebrated by threatening a 10% tariff on all imports from eight European countries. For TIFIA, this move sent a particularly troubling signal to investors. A new, improved measure will go into effect on February 1. This, combined with overall volatility in Japan’s bond market, contributed to extreme moves in U.S. stocks and bonds.
Here’s what Matt Maley, chief market strategist at Miller Tabak + Co, told CNBC on what’s been happening. He noted that the president has a penchant for creating crises through his misguided policy moves, only to solve them in ways that lead to temporary market boosts.
“Just like what took place several times last year, the president fixed a problem of his own making … and the market responded with a nice advance.” – Matt Maley
Despite Maley’s rosy outlook, all experts aren’t as optimistic. By Steve Sosnick, chief strategist at online brokerage Ameritrade Capital, on difficulties posed by Trump’s erratic policy-making. These changes have a dramatic effect on our economy and diplomacy. He added that it can be difficult for investors to figure out how to navigate that level of unpredictability.
“When it comes to major economic policies or major geopolitical, diplomatic policies, it’s not always easy to deal with if you’re getting these comings and goings basically spuriously.” – Steve Sosnick
The Greenland Factor
The Greenland affair has become yet another complication for those investors looking for a safe haven while the U.S. continues to fester in its own craziness. Trump has Tweeted disavowing the use of force to seize Greenland! Even with his deregulation proclivity, this incident has caused a huge sputter of doubt with international market players.
Francesco Pesole, a foreign exchange strategist for ING wrote about a fascinating trend. He noted that despite the framework deal in Greenland and the stabilization of Japan’s bond market, the orchestrated sell-off of U.S. equities, bonds, and the dollar was causing fears for international investors. Many of them are actively seeking to enhance their own protection as U.S. policy shifts are increasingly likely to have devastating fallout.
“Despite the framework deal on Greenland and stabilization in [Japan’s bond market], the episode of coordinated US equities, bonds and dollar sell-off may have raised some fresh concerns among global money managers that are perhaps increasing their protection.” – Francesco Pesole
With global economic uncertainty the order of the day, central banks continue to shore up their reserves with gold—including the People’s Bank of China. This bloody onshoring campaign is the real culprit behind gold soaring to all-time highs. Lately, gold prices have skyrocketed above $4,900 per troy ounce for the first time ever.
Currency and Commodity Trends
Instability in U.S. financial markets have caused a sharp increase in the dollar index to decrease. As of the time that this week, it’s down by more than 1 percent, cutting what was at least a year-to-date gain earlier this year. In similar fashion, on the last 12 months basis, dollar index has tumbled by 9% in its worst showing since June.
Alongside the dollar’s drop, gold prices have been on an almost unprecedented rise. According to Thomson Reuters analysts, increasing gold prices have traditionally been a signal of investor concern over the stability of currency values and overall economic predictions. The recent rise beyond $4,700, then $4,800, then $4,900 per troy ounce illustrates this point beautifully.