Even as markets rally, Trump's policymaking causes market angst
NEW YORK: As Wall Street puts April's tariff shakeout in the rear-view mirror and indexes set record highs, investors remain wary of US President Donald Trump's rapid-fire, sometimes chaotic policymaking process and see the rally as fragile.
The S&P 500 and Nasdaq Composite Index advanced past their previous highs into uncharted territory on Friday. Yet traders and investors remain wary of what may lie ahead.
Trump's April 2 reciprocal tariffs on major trading partners roiled global financial markets and put the S&P 500 on the threshold of a bear market designation when it ended down 19 per cent from its Feb 19 record-high close.
This week's leg up came after a US-brokered ceasefire between Israel and Iran brought an end to a 12-day air battle that had sparked a jump in crude prices and raised worries of higher inflation.
But a relief rally started after Trump responded to the initial tariff panic that gripped financial markets by backing away from his most draconian plans.
JP Morgan Chase, in the midyear outlook published on Wednesday by its global research team, said the environment was characterised by "extreme policy uncertainty."
"Nobody wants to end a week with a risk-on tilt to their portfolios," said Art Hogan, market strategist at B. Riley Wealth.
Everyone is aware that just as the market feels more certain and confident, a single wildcard policy announcement could change everything," even if it does not ignite a firestorm of the kind seen in April.
Part of this wariness from institutional investors may be due to the magnitude of the six per cent S&P 500 rally that followed Trump's re-election last November and culminated in the last new high posted by the index in February, said Joseph Quinlan, market strategist at Bank of America.
"We were out ahead of our skis," Quinlan said. A focus on deregulation, tax cuts and corporate deals brought out the "animal spirits," he said. Then came the tariff battles.
Quinlan remains upbeat on the outlook for US stocks and optimistic that a new global trade system could lead to US companies opening new markets and posting higher revenues and profits.
But he said he is still cautious. "There will still be spikes of volatility around policy unknowns."
Overall, measures of market volatility are now well below where they stood at the height of the tariff turmoil in April, with the CBOE VIX index now at 16.30, down from a 52.30 peak on Apr 8.
UNSTABLE MARKETS
"Our clients seem to have become somewhat desensitised to the headlines, but it's still an unhealthy market, with everyone aware that trading could happen based on the whims behind a bunch of" social media posts, said Jeff O'Connor, head of market structure, Americas, at Liquidnet, an institutional trading platform.
Trading in the options market shows little sign of the kind of euphoria that characterised stock market rallies of the recent past.
"On the institutional front, we do see a lot of hesitation in chasing the market rally," Stefano Pascale, head of US equity derivatives research at Barclays, said.
Unlike past episodes of sharp market selloffs, institutional investors have largely stayed away from employing bullish call options to chase the market higher, Pascale said, referring to plain options that confer the right to buy at a specified future price and date.
Bid/ask spreads on many stocks are well above levels O'Connor witnessed in late 2024, while market depth – a measure of the size and number of potential orders – remains at the lowest levels he can recall in the last 20 years.
"The best way to describe the markets in the last couple of months, even as they have recovered, is to say they are unstable," said Liz Ann Sonders, market strategist at Charles Schwab. She said she is concerned that the market may be reaching "another point of complacency" akin to that seen in March.
"There's a possibility that we'll be primed for another downside move," Sonders added.
Mark Spindel, chief investment officer at Potomac River Capital in Washington, said he came up with the term "Snapchat presidency" to describe the whiplash effect on markets of the president's constantly changing policies on markets.
"He feels more like a day trader than a long-term institutional investor," Spindel said, alluding to Trump's policy flip-flops. "One minute he's not going to negotiate, and the next he negotiates."
To be sure, traders seem to view those rapid shifts in course as a positive in the current rally, signalling Trump's willingness to heed market signals.
"For now, at least, stocks are willing to overlook the risks that go along with this style and lack of consistent policies, and give the administration a break as being 'market friendly'," said Steve Sosnick, market strategist at Interactive Brokers.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
an hour ago
- The Star
‘Hefty price tag' for subsidy scheme: is China's consumer boost sustainable?
For months, consumers across China buying everything from iPhones to cars and washing machines have enjoyed steep discounts – courtesy of the government. This vast subsidy programme has played a key role in boosting China's consumer spending this year, helping the economy remain relatively robust even amid an unprecedented trade war with the United States. But in June, some of those offers suddenly disappeared. In the eastern Jiangsu province, local authorities stopped issuing vouchers for online purchases of home appliances. Around the same time, several other provinces suspended their trade-in programmes for cars and appliances, citing depleted funds. The cancellations were the first sign that a reckoning may be approaching over China's consumption-boosting policies, which have succeeded in their main goals – but come with a hefty price tag. Last week, Beijing reaffirmed its support for the national trade-in scheme for durable goods, pledging that the rest of the 300 billion yuan (US$41.8 billion) funding would be allocated to local governments before the end of the year, with the next two rounds of funding set to be issued in July and October. On Thursday, Li Chao, deputy director of the National Development and Reform Commission's Policy Research Office, said the government would formulate monthly and weekly plans to monitor the utilisation of those funds. 'This will ensure the orderly implementation of the consumer goods trade-in policy throughout the year,' she added. Yet, economists are increasingly questioning the sustainability of the policies. Though the sums involved are not a big burden for China's central government, some argue the cost of the programme may be putting more pressure on the finances of local authorities, which are already struggling under high debt levels. Beyond that, there is also concern about the policies' diminishing return on investment. Some worry the trade-in programme may simply be pulling forward future demand, meaning the current spending binge may be followed by an inevitable hangover once the policies come to an end. All of that has led to a growing debate over how long Beijing should continue funding the programme, especially if the US tariff war grinds on past this summer. There's the risk that sentiment simply weakens again when the rebates run out 'The trade-in scheme is a good short-term option, but it assumes that demand recovers and consumer confidence strengthens,' said Ben Simpfendorfer, a Hong Kong-based partner at the management consulting firm Oliver Wyman. 'These trade-in schemes work best when they're accompanied by structural reform that focuses on the medium term. Otherwise, there's the risk that sentiment simply weakens again when the rebates run out,' he added. The headlines figures suggest the trade-in programme has made a real impact this year. During the first five months of 2025, China's retail sales grew 5.0 per cent year on year, up from 3.8 per cent in the last quarter of 2024, despite a turbulent global economy. But economists from Nomura forecast that retail sales growth would fall to just 3.1 per cent year on year in the second half of 2025, due to the inevitable 'payback' from the trade-in programme, a higher base from last year, and the new austerity rules for government officials that are expected to deal a blow to the catering sector. 'In addition to providing a one-off subsidy to consumption, Beijing might need to consider longer-term structural policies to support consumption,' they said in a report published this week. Reforms to the social security system – such as raising basic pension payments to low-income households and increasing subsidies for basic medical insurance – would be the most effective long-term policy moves to bolster consumption and reduce inequality, according to the report. Some economists also worry about the financial strain the consumer goods trade-in schemes could place on local governments, which are required to cover a percentage of the total subsidies: 5 per cent for China's western provinces, 10 per cent for the central provinces, and 15 per cent for the eastern provinces. Given the ongoing US-China trade negotiations, the policy should be expanded rather than halted Many local governments in China are already grappling with high debt levels and facing budgetary pressures due to a decline in income from land sales amid a downturn in the property sector. 'The overall pressure on local governments [from funding the trade-in schemes] is not too big, but for those poorest regions, they may genuinely lack the funds to cover this expense,' said Lu Ting, chief China economist at Nomura. However, Xue Qinghe, CEO of the private Guangdong-based think tank Zhibenshe, said the trade-in programme was unlikely to impose significant pressure on local governments, as it could also boost local tax revenues. 'From the current perspective of how the trade-in programme is supporting consumption, this policy remains positive. Coupled with the ongoing US-China trade negotiations, the policy should be expanded rather than halted,' Xue said. On Tuesday, Apple's official website in China showed that some of its products now benefitted from national subsidies worth up to 2,000 yuan, with the deals applying to purchases at the company's stores in Shanghai as well as online purchases with a Beijing shipping address. - SOUTH CHINA MORNING POST
Borneo Post
2 hours ago
- Borneo Post
US Senate opens debate on Trump's controversial spending bill
The U.S. Capitol on June 28, 2025 in Washington, DC. Senate Republicans overnight released a new version of the 'One, Big, Beautiful Bill,' as they approach U.S. President Donald Trump's July 4 deadline. – AFP photo WASHINGTON (June 29): US senators debated into the early hours of Sunday Donald Trump's 'big beautiful' spending bill, a hugely divisive proposal that would deliver key parts of the US president's domestic agenda while making massive cuts to social welfare programs. Trump is hoping to seal his legacy with the 'One Big Beautiful Bill,' which would extend his expiring first-term tax cuts at a cost of $4.5 trillion and beef up border security. But Republicans eyeing 2026 midterm congressional elections are divided over the package, which would strip health care from millions of the poorest Americans and add more than $3 trillion to the country's debt. The Senate formally opened debate on the bill late Saturday, after Republican holdouts delayed what should have been a procedural vote — drawing Trump's ire on social media. Senators narrowly passed the motion to begin debate, 51-49, hours after the vote was first called, with Vice President JD Vance joining negotiations with holdouts from his own party. Ultimately, two Republican senators joined 47 Democrats in voting 'nay' on opening debate. Trump has pushed his party to get the bill passed and on his desk for him to sign into law by July 4, the United States' independence day. 'Tonight we saw a GREAT VICTORY in the Senate,' Trump wrote on his Truth Social platform after the vote to begin debate. 'Republicans must remember that they are fighting against a very evil, corrupt and, in many ways, incompetent (Policywise!) group of people, who would rather see our Country 'go down in flames' than do the right thing,' he said in an earlier post. Democrats are bitterly opposed to the legislation and Trump's agenda, and have vowed to hold up the debate. They began by insisting that the entirety of the bill be read aloud to the chamber before the debate commences. The bill is roughly 1,000 pages long and will take an estimated 15 hours to read. 'Republicans won't tell America what's in the bill,' said Senate Democratic Leader Chuck Schumer. 'So Democrats are forcing it to be read start to finish on the floor. We will be here all night if that's what it takes to read it.' If passed in the Senate, the bill would go back to the House for approval, where Republicans can only afford to lose a handful of votes — and are facing stiff opposition from within their own ranks. – Divisive cuts – Republicans are scrambling to offset the $4.5 trillion cost of Trump's tax relief, with many of the proposed cuts to come from decimating funding for Medicaid, the health insurance program for low-income Americans. Republicans are split on the Medicaid cuts, which will threaten scores of rural hospitals and lead to an estimated 8.6 million Americans being deprived of health care. The spending plan would also roll back many of the tax incentives for renewable energy that were put in place under Trump's predecessor Joe Biden. On Saturday, former Trump advisor Elon Musk — with whom the president had a public falling out this month over his criticism of the bill — called the current proposal 'utterly insane and destructive.' 'It gives handouts to industries of the past while severely damaging industries of the future,' said Musk, who is the world's richest person, and owns electric vehicle company Tesla and space flight firm SpaceX, among others. Independent analysis also shows that the bill would pave the way for a historic redistribution of wealth from the poorest 10 percent of Americans to the richest. The bill is unpopular across multiple demographic, age and income groups, according to extensive recent polling. Although the House has already passed its own version, both chambers have to agree on the same text before it can be signed into law. – AFP donald trump One Big Beautiful Bill politics US Senate
New Straits Times
2 hours ago
- New Straits Times
Sandal scandal: Prada credits new design's Indian legacy amid furore
LUXURY fashion powerhouse Prada has acknowledged the ancient Indian roots of its new sandal design after the debut of the open-toe footwear sparked a furore among Indian artisans and politicians thousands of miles from the catwalk in Italy. Images from Prada's fashion show in Milan last weekend showed models wearing leather sandals with a braided design that resembled handmade Kolhapuri slippers with designs dating back to the 12th century. A wave of criticism in the media and from lawmakers followed over the Italian brand's lack of public acknowledgement of the Indian sandal design, which is named after a city in the western state of Maharashtra. Lorenzo Bertelli, son of Prada's owners, responded to the sandal scandal in a letter to a trade group on Friday recognising their Indian heritage. "We acknowledge that the sandals... are inspired by traditional Indian handcrafted footwear, with a centuries-old heritage," Bertelli, Prada's head of corporate social responsibility, wrote in the letter to the Maharashtra Chamber of Commerce, seen by Reuters. The sandals are at an early stage of design and it is not certain they will be commercialised, but Prada is open to a "dialogue for meaningful exchange with local Indian artisans" and will arrange follow-up meetings, he wrote. A Prada spokesperson issued a statement acknowledging the sandal's inspiration from India, adding the company has "always celebrated craftsmanship, heritage and design traditions." Prada products are beyond the reach of most Indians. Its men's leather sandals retail for US$844 and up, while the Kolhapuri slippers, sold in Indian shops and street markets, start at about US$12. India's luxury market is small but growing fast, with rising numbers of rich people buying Louis Vuitton bags, Lamborghini cars, luxury homes and watches. Conversely, Indian culture and crafts are increasingly finding their way into global brand designs. High-end jeweller Bulgari offers a US$16,000 Mangalsutra necklace inspired by a chain traditionally worn by married women. Bertelli's homage to Indian design was sent in a response to a complaint from the head of the trade group that represents 3,000 Kolhapuri sandal artisans, as the online uproar gathered momentum. "From the dusty lanes of Kolhapur to the glitzy runways of Milan... will the world finally give credit where it's due?" India's DNA News posted on X. Sambhaji Chhatrapati from the Kolhapur Royal family told Reuters by phone he was upset that craftsmen had not been acknowledged for the "history and heritage of 150 years." Kolhapur-based businessman Dileep More, however, said images of the Prada sandal were bringing cheer to some artisans as they show their traditional product going global. "They are happy that someone is recognising their work," he said.
