Trump Slump? Tune out the noise
Concerns that US President Donald Trump might plunge the US economy into recession to achieve his aggressive trade goals have unleashed panic across global markets, including the Australian share market.
Until now, many investors have embraced the idea of “US exceptionalism,” which has pushed the S&P 500 Index share market to record highs, powered the economy, maintained a strong labour market, and placed the country at the forefront of artificial intelligence. However, a slew of recent weaker economic data shows the US economy is shrinking fast.
In addition to the weak economic data, the US President has failed to allay concerns, warning that Americans may feel a “little disturbance” from the unfolding trade wars and refusing to rule out the possibility of a recession. This sparked panic on Wall Street as investors dumped risk assets. The S&P 500 Index extended its sell-off from February to nearly 9 percent, while the technology-heavy Nasdaq slumped a further 4 percent. In Australia, the S&P ASX 300 has seen a similar fall. Both markets hit new highs in the middle of February, but the slowdown since then has been dramatic.
US market volatility has also spiked with the VIX Index, Wall Street’s “fear gauge”, jumping to a level last reached during a market sell-off in August. Investor sentiment has dramatically shifted less than two months into the new Administration as the President has rolled out sweeping tariffs on America’s three largest trading partners.
Markets initially cheered Trump’s election victory in November, betting that tax cuts and deregulation plans would extend a two-year bull market. That so-called Trump trade has since unwound with the “Trump Bump” turning into a “Trump Slump.”
While talk of recession seems premature, given the strength of the US labour market, there is no question that a slowdown is underway. The Trump Administration’s policy agenda – immigration cuts, tariffs and reduced government spending – collides with an economy that may have had more cracks under the surface than markets were willing to face up to last year.
As investors, there are a few points to takeaway:
- Volatility is a normal part of investing. Markets go up and down all the time, but over the long run, they go up.
- Trying to time markets is hazardous, no one has a crystal ball. The “Trump Bump” has turned into a “Trump Slump” in the blink of an eye.
- History shows that investors who change their portfolios in response to market conditions usually come out worse off than sticking with the portfolio that was designed to meet their goals. Discipline is rewarded.
So, tune out the noise. What matters most is that you are on track to meet your long-term goals and that you have a portfolio designed to do so. As always, we are here to help. If you have any questions about your financial and wealth management, get in touch.
