A question of trust
A few months ago, the succession of record highs for US equities was headline news in the financial press. In recent weeks, the ticker boards have turned from green to bright red, but Wall Street nonetheless continues to chalk up historic milestones. After Donald Trump’s “Liberation Day” and his announcement of trade tariffs, the S&P 500 shed 10.5% in two days, the highest loss over such a short period since Covid. This is a phenomenon seen only five times since the nineteen thirties. On 8 April, the US stock market’s flagship index saw one of the most brutal trend turnarounds in its history, rising 4% in early trading hours before dropping to almost 3% down just before the close. The next day, after the US President’s announcement of a 90-day pause in “reciprocal” trade tariffs, the Nasdaq skyrocketed 12%, the third largest one-day rise in its history. On the following day, it temporarily wiped out two thirds of this historic rally.
This rollercoaster market ride enthuses traders as much as it pushes long-term investors to despair. Most of all, it signals that market players have lost their bearings completely. And their trust, as evidenced by the behaviour of safe-haven assets. Last Friday, gold broke the USD 3,200 per ounce barrier to hit new records, whereas the US dollar/yen rate broke above 143, a level not seen since September 2024 when fears of an imminent US recession were at their peak.The same logic applies to the Swiss franc, which is trading at its highest rate versus the dollar since the sovereign debt crisis in 2011.
This lack of trust among investors is clearly due to the complete lack of visibility caused by the erratic policies of Donald Trump. It is also a reflection of the fog into which companies have been plunged and the impacts there are even more serious. Of course, it is uncomfortable for Goldman Sachs to have to reassess its economic scenario after just a couple of hours[1] but this can be done at the stroke of a pen. It is less straightforward for a company that has already cancelled orders, built up buffer stocks or adjusted its workforce. How can corporate bosses come up with any forecasts at all, define any sort of strategic plan or implement any type of roadmap when the rules of the game can change to such an absurd extent over just a few days? As the quarterly corporate reporting season opens, we can only imagine the difficulties managers face in updating their forecasts for the coming quarter, let alone those for the full year.
More than the direct impact of the hike in trade tariffs, this loss of trust may be the greatest threat for the economy. One of the consequences of a lack of trust is paralysis. And nothing is worse for the economy than companies and households that are petrified by the fog and stop investing and consuming. The 90-day pause in “reciprocal” trade tariffs announced with great pomp by Donald Trump changes nothing. Firstly, because the escalation with China that accompanies the pause for other countries means that the average trade tariff on imports to the US remains around 25%. And secondly, because, in reality these 90 days – intended to enable the conclusion of trade agreements – simply prolong the period of uncertainty. Companies and investors alike are capable of adapting to any situation, even the most unpleasant, but a minimum level of visibility is required. No visibility, no trust. And without trust, caution will remain the watchword, in the behaviour of companies and markets alike.