After what has seemed like non-stop falls in a “bloodbath” for the global stock markets since Donald Trump announced his tariff plan last week, the first signs of green were on show again on Tuesday.
Overnight, both China’s Hang Seng and Japan’s Nikkei 225 ended in positive territory, the latter as much as six per cent up. In the UK, the FTSE 100 was up more than two per cent after two hours of morning trading, while in Europe the CAC 40, the DAX and the Euronext were all up between 1.3 to 1.7 per cent.
Even Stateside, where the stock market rout has been so pronounced following the escalation of Trump’s potential trade war, S&P 500 futures were showing a rise of more than 1.3 per cent.
Investors were finally getting some relief from the sharp drops and some were even cautiously looking to buy back in. But is this really the end of the stock market’s reaction to the tariffs?
How much was the fall?
Depending on where you take the start of the sell-off will give different results – as, of course, will the index you look at.
For example, the FTSE 100 closed at about 8600 on 2 April, before the American president spoke. Now just above 7840 at the time of writing, that’s just under a nine per cent drop all told – but if we factor in slightly longer timeframes to consider that investors were already spooked beforehand on the mere suggestion of what the tariffs might entail, the drop is larger.
Stock markets hate uncertainty more than anything, and the Trump administration kept matters very quiet as to what the tariffs would entail, so naturally there was a risk-off selling spree even before the measures were announced.
Between the 25 March and the 7 April, for example, the S&P 500 in the US fell more than 12 per cent – but it’s down almost 18 per cent if we take a recent high in mid-February as the start point of the selling.
In total, more than £6.5tn was wiped off global stock markets across the most dramatic part of the post-Liberation Day sell-off.
Is this the end of the selling?
This one is one of two “impossible to know” questions – nobody can predict the market with any kind of accuracy across any kind of prolonged period.
It would take just one new proclamation from Trump to make stock markets surge in either direction. On the mere rumour of a tariff pause on Monday, for example, several US equities shot up by more than five per cent in minutes – before the White House shot down those suggestions and they resumed the sell off.
Even so, the losses were less-severe and there did seem to be something of a bottoming out – with futures markets showing a likely rebound to start the day with in America. Apple (1.3 per cent), Nvidia (2.4pc), Amazon (1.7pc), Nike (2.7pc) and Tesla (1.5pc) all took a hammering over the likely impact of tariffs and trade wars, and all were in the green ahead of the markets in New York opening on Tuesday,
“After multiple punishing sessions, stock markets appear to have started their road to recovery,” Russ Mould, investment director at AJ Bell, said. But he cautioned over the fragility of investor mentality right now.
“The Nasdaq ended Monday with a very small gain, while the S&P 500 was only down 0.2 per cent. It suggests investors are slowly regaining confidence, perhaps in the belief that an actual breakthrough on tariffs – either a temporary pause or positive negotiations – could unleash the mother of all rebound rallies.”
What comes next?
And here’s the other impossibility – timing the market. This is why – for retail (or private individual) investors particularly – there’s little sense in trying to guess the exact bottom, and why smaller, more consistent investments is the usual advised route.
Price rises could encourage investors to jump back in ahead of the biggest gains but professionals can operate just as quickly in reverse on bad news, Mr Mould added.
“It’s dangerous to think a massive rally will definitely happen, given how Trump is unpredictable, but the ‘just imagine’ thought will now be firmly engrained in investors’ minds. These are small wins in terms of asset movements but big wins for the state of the broader market given the bloodbath we’ve endured since Liberation Day last week.
“Markets could stay fragile for days and weeks to come. It would only take a new sign of aggression from Trump or a trading partner fighting back hard to cause upset again. Market recoveries can quickly lose momentum if investors lose faith in a remedy to the situation that caused the original sell-off.”
A look back at the historical falls and rises in stock markets show it’s rarely a straight path back up either. Think of Covid: shares eventually started to rise and shot up when lockdown was ended, but cratered again to a lesser extent when the UK went back into another lockdown, then for the phased or local tiers.
There’s so much at play and so many factors which can impact beyond just tariffs and the responses to them, that a stock market simply cannot be accurately predicted.
Over the longer term, though, they have always bounced back to set new highs – and in the UK at least, the most recent one was still less than a month ago.