| Name | Daily Close | Daily Change | Daily Change (%) |
|---|---|---|---|
| Dow | 37,965.60 | -349.26 | -0.91% |
| S&P 500 | 5,062.25 | -11.83 | -0.23% |
| Nasdaq | 15,603.26 | 15.48 | 0.10% |
| VIX | 46.98 | 1.67 | 3.69% |
| Gold | 3,008.60 | 35 | 1.18% |
| Oil | 61.19 | 0.49 | 0.81% |
US MARKET
On a highly volatile day, the S&P 500 closed down 0.25% , the Nasdaq 100 up 0.32$ , the Dow Jones Industrial Average down 0.75%. All three indices had been briefly in the green.
Volatility was the theme of the day, with the S&P 500 recording more than an 7% intra-day swing, highlighting that no one really knows how to trade the market at the moment. The S&P 500 was down as much 4.7% then, in the space of 10 minutes, was up 3.7%, reputedly the most volatile day since 1987.
What drove the violent swing was a rumour of a 90-day reprieve in the tariffs. The rumour came from one single tweet from an unverified social media account. The White House subsequently stated it was fake news. Extraordinary stuff and tells you a lot about the fragile psychology of the market currently. The Cboe Volatility Index, or the VIX, jumped above 50, the highest level since the start of the Covid pandemic. Volatility spikes typically occur at the beginning of a recession and the beginning of a sustained sell-off. The 5-day realised volatility is 57%.
You can understand the market confusion. On Monday, on the one hand, the White House conveyed that it was holding talks with Japan, but on the other hand Donald Trump threatened an additional 50% tariff on China. Talking to the media, Netanyahu stated Isreal would seek to equalise the trade imbalance with the US. That is distinctly different to tariff level relief.
Meanwhile, hedge funds recorded their largest-ever one-day net sales of global equities on the first day of trading after Trump’s sweeping tariffs announcement, according to Goldman Sach prime brokerage desk
Strategists continued to downgrade their views on US stocks, with JPMorgan Chase & Co. slashing its year-end forecast for the S&P 500 Index to 5,200 from 6,500. They joined a slew of Wall Street banks that have reduced their expectations for US equities, including Evercore ISI, Goldman Sachs Group Inc., Barclays and Yardeni Research.
Crossing the wires late in the trading day was news that the European Union is proposing 25% tariffs on a selection of US goods. EU member states aim to approve the plan later this week and it would enter into force on April 15. the EU continues to debate how to more broadly respond to Trump’s announcement of a 20% tariff on imports from the EU.
Interesting to note that the market beta of the US market is the highest globally (along with the Netherlands), being well above one. What this means that the US market is more vulnerable in a significant market dislocation environment. In contrast, the Saudi Arabian share market, which has an exceptionally low beta of 0.5%, has hardly moved over the last week, or so.
US first quarter earnings also start to play a key role, with JP Morgan, Morgan Stanley and Wells Fargo kicking earnings into gear on Friday. We can almost assume the reported earnings, revenues, and margins for the reported quarter will be almost irrelevant, as it’s the guidance, outlooks and commentary about how companies are managing the tariff impact that will be far more important.
Perhaps it’s too early to offer investors anything too explicit as the situation remains fluid, but US corporations are the first derivatives of the tariff shock and as many try to price recession risk and company earnings and revenue estimates, what companies say or don’t say matters to markets.
Finally, the stock market vigilantes are well and truly out. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon urged a quick resolution to the uncertainties sparked by the tariffs and warned against a potentially “disastrous” fragmentation of America’s long-term economic alliances. Hedge fund billionaires Bill Ackman and Stanley Druckenmiller criticized Trump’s decision to launch global tariffs.
LOCAL MARKET
Monday appears to have been the day that Australian investors finally began to appreciate the gravity of the impacts of the tariffs after relatively modest falls last Thursday and Friday. The S&P/ASX 200 Index opened sharply down by as much as 6% but later pared losses. At the close, the S&P/ASX 200 Index finished down 4.8%.
Commodity stocks were particularly hard hit, with the likes of iron ore, copper, and oil commodities having come sharply off in recent days. Index heavyweight BHP dropped 5.3%, Fortescue down 3.7%, oil stocks Santos (-9.4%), Woodside (-5.2%), and Ampol (-7.0%) were hit, while not even gold miners escaped with the likes of Evolution Mining down 8.0%.
Bank stocks were also hard hit given the revisions to the RBA policy setting outlook and the compression in NIM declining official rates typically lead to. And the NIM starting point for banks hasn’t been particularly strong given the ‘mortgage wars’. CBA was hardest hit, down -6%, no doubt because it had been priced last year at levels few could understand.
In contrast, defensive stocks such as Woolworths, ResMed, REA, and Transurban were barely scathed and the ASX was actually up (volumes are good for business).
How much further will equities fall? Anyone who thinks they know is speculating. Equities are still in expensive territory by historical standards, creating ample room for further losses should sentiment not turn on a dime. And as we have noted previously, money managers by historical standards had exceptionally high levels of exposure to equities prior to these current ructions. That is, there is plenty more capacity to reduce equities exposure.
Meanwhile, Macquarie is doubling down on defensive plays as a bear market becomes more probable. “With higher Trump tariffs, we think a bear market is even more likely,” pointing to the level of some levies, muted manufacturing output in the US, and falling consumer spending. “A slowing consumer is still the most consistent indicator of bear markets, and we expect this to occur via a de-rate from still expensive levels.”
Interestingly gold declined, which may be a sign off institutional investors selling to fund margin calls. The AUD plummeted by an amount not seen since the GFC. It briefly fell below $0.60 before stabilising. It is unclear if the RBA stepped into the market to support the AUD.
Asian markets were particularly hard hit. The MSCI Asia Pacific Index sank 7.1%, its worst day since 2008. Margin calls and deleveraging are in play here. The EU met last night to discuss their tariff response.