The last month has been a stomach-churning roller coaster ride for investors, with each plunge or whiplash-inducing surge triggered by some hollow decree from the White House.
And just like that we are back to where we started. Despite a tumultuous last month in financial markets, this week they closed pretty much exactly where they were on 3 April. That was the morning after US President Donald Trump’s “Liberation Day” announcement of “reciprocal” tariffs, a hocus pocus attempt to levy import taxes based on a country’s trade surplus with the US.
But what a ride it has been. The last month has been a stomach-churning roller coaster ride for investors, with each plunge or whiplash-inducing surge triggered by some hollow decree from the White House. From hovering above 5,600 in late March, the S&P 500 briefly plunged to below 5,000, a staggering drop of more than 12% in only three days. It subsequently lurched violently up and down over the following three weeks to settle slightly below where it all started.
Volatility has surged to extreme levels. The VIX index, which tracks market volatility, spiked to heights not seen since the Covid-19 pandemic’s onset in March 2020.
A new underlying reality
Yet, while at first glance it might seem like a case of “the more things change, the more they stay the same”, looking closer at macro indicators makes it clear that we are in a very different environment compared to that pre-Trump.
First are currency markets. In a similar way that Brexit destroyed the reputation of pound sterling as a serious store of value, the US dollar has not regained its pre-April lustre. It continues to be almost 4% lower than it was in late March, against the Bloomberg basket of major currencies. It is down almost 7% year to date, its worst start to a year in decades. Despite domestic political uncertainty, the rand is flat against the USD thus far in 2025.
Likewise, gold and the Swiss franc — pretty much the last two true safe havens — are at all-time highs. Bitcoin, after an initial sharp selloff, has clawed back some ground, but remains far from fulfilling its “digital gold” narrative.
Second, and perhaps most troubling of all, were the moves in US bond markets. Initially, equity market volatility in early April led to US bonds strengthening, playing their usual role as a safe haven. But soon after, the panic spread to the treasury market, with bond yields on the US 10-year moving as much as 50bps higher within two days (bond yields move inversely to prices).
These are extraordinary moves given the gargantuan size of the US bond market, the cornerstone of global finance. Some on Wall Street claimed it was China dumping US debt in retaliation for tariffs, while others pointed towards margin calls forcing investors to liquidate profitable positions. Regardless of the cause, the sell-off risked triggering a broader financial crisis.
Fortunately, calm prevailed, with the 10-year yield now sitting around 4.2%, roughly in line with March levels. However, at the long end of the curve, the damage seems to be more permanent. The US now must pay 4.7% to borrow at such maturities, compared with under 4% as recently as September.
Finally, events of the last month have also had a profound impact on where investors are allocating their capital. Although markets outside the US have experienced similar levels of volatility, they did not sell off as sharply and have rebounded more quickly and strongly.
That will sound familiar to South African investors watching the JSE. Following record highs in late March, driven by gold and Tencent-linked stocks, the Top 40 index dropped by nearly 10% in just three days. Yet now the South African equity benchmark is hitting fresh all-time highs.
This pattern has echoed around the world, with investors showing a greater appetite for stocks in Europe, Japan, and emerging markets compared to those in the US. The era of US market exceptionalism appears to be ending.
Within the US itself, a sharp divergence has taken shape. The pre-Liberation Day investor darlings — the “Magnificent Seven” mega-cap tech stocks — remain significantly below their late 2024 peaks, while more defensive sectors such as consumer staples and utilities have proven more resilient.
A traumatised, bipolar market
The picture that emerges is of a bipolar market, suffering from Trump-induced PTSD. Financial markets have spent the last month reverberating between panic and euphoric bargain hunting. This is unsustainable. A market that responds violently to political news, and where prices oscillate in a manic cycle of hope and fear, cannot endure.
Two paths lie ahead: either the White House injects some predictability and coherence into policy, allowing markets to stabilise at elevated levels, or political chaos continues — and markets recalibrate much lower to account for persistent volatility.
Those who still believe that Trump’s more volatile and destructive tendencies can be tamed will be hoping the saner voices prevail. Yet what is happening within the current White House remains completely opaque — more reminiscent of a Topkapi Palace-style circus than a functioning executive branch. It is anyone’s guess as to which bodies will be tossed off the ramparts first, and it is too soon to rule out that it could be those the market finds most comforting. For now, markets appear to be pricing in a return to stability, despite scant evidence that such an outcome is imminent.
Furthermore, the less obvious assumption baked into these valuations is that the US will not fall into a recession. Economists and forecasters are, however, gloomier than equity investors. The IMF says there’s a 40% chance of a US recession this year, while the median forecaster surveyed by Bloomberg sees a 45% chance. Polymarket is at 55% as of this writing, while US airline Southwest’s CEO says the US recession has already started.
Hard economic data releases over the next month or two, particularly related to high-income consumer behaviour, will be critical. Any signs of higher credit stress in the US will be particularly concerning.
Still, there’s a chance that the worst has passed. With inventories depleted after years of post-Covid normalisation, companies may soon need to restock — potentially aided by a reduction from the current level of tariffs.
While the hype around the AI and American Exceptionalism narratives now looks completely unrealistic, that does not rule out further market gains. If economic indicators continue to stabilise, and political turmoil does not worsen, investors may face another slow but profitable climb up the familiar wall of worry. DM