Global stock markets hit an all-time high last week. The latest US GDP estimate from the Federal Reserve Bank of Atlanta is at 4.6% growth for the second quarter.
That’s not what the tariff tantrum crew were expecting…
What happened to the Great Depression they predicted?
Of course stocks did plunge when Trump first announced his tariffs. But what made the stock market’s April crash so interesting at the time was the speed with which it could reverse at any given moment.
All it’d take is a social media comment from President Trump that tariffs were delayed or cancelled. Then stocks would recover all their extraordinary losses just as quickly as they’d occurred in the first place.
I don’t think any stock market crash has ever been so ethereal.
I made this point during a Fat Tail editorial meeting back in April. We’d spoken about how catastrophic the huge tariffs would be. Which made me question whether they would ever eventuate. And if not, how easily and quickly could the gathering storm clouds in the stock market dissipate?
My colleagues were annoyed when I suggested that the threat of tariffs could just vanish in an instant. Well, however long it takes for Trump to type up his social media diatribes.
The few who believe in Trump said they believe in his announced economic policies and gumption to implement them.
Those suffering from Trump Derangement Syndrome were convinced he would cause a trade war bad enough to sink stocks far lower. The Great Depression was their comparison…
But nobody expected a brief crash and rapid recovery as Trump reversed his threats out of the blue.
It’s not like politicians can make sudden U-turns on policies, is it? That never happens, does it?
Only our crypto editor Ryan Dinse considered my observation plausible at the time. I remember so clearly because it was his last editorial meeting.
But what I suggested back then is precisely what happened…
What crash?
First the stock market crashed with astonishing speed when Trump announced tariffs. And then it recovered just as quickly when Trump announced tariffs were delayed. Since then, stocks have gradually become immune to tariff shenanigans – good news and bad.
The sequence allowed Trump’s detractors to claim he’d surrendered. While his supporters claim he played his hand beautifully by bluffing his geopolitical enemies into trade deals. But the narrative is irrelevant to us. Consider the effect on the stock market instead.
Will the crash and recovery even rate a mention in stock market history? Will the blip even show up in stock market charts?
Stocks began their crash on 3 April. They had recovered by the 1 May. If you squint hard enough, you might be able to spot the “crash” in this monthly chart of the S&P 500 that goes back to January 2020:
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| Source: Yahoo Finance |
To be honest, I suspect Trump will soon deny the crash ever happened. And I cannot wait for the furore his denial causes. But both sides will have a point.
The tariff tantrum is only the latest example of ‘Project Fear’ in action
Investors in the UK have a name for what happened to stocks in April. They call it ‘Project Fear’. And investors in the UK were the first ones to experience it in action too.
Back in 2016, the media and all major economic institutions predicted an economic meltdown if the population voted for Brexit. But nothing happened. Even a pandemic that coincided with Brexit couldn’t trigger the anticipated crisis.
Over the years, the doom mongering media headlines about Brexit became known as ‘Project Fear’.
But Brexit was only a threat to the extent that governments threatened to make it one. That threat could instantaneously vanish with agreements or unilateral decisions to avoid disruption.
Which is what happened, repeatedly. The media that had panicked about Brexit was forced to publish good economic and stock market news ‘despite Brexit’ for almost a decade.
The pandemic is another example. The economic chaos it caused hinged on how policy makers interpreted scientific data. As it emerged that infection fatality rates had been greatly exaggerated by modelling, and lockdowns were ineffective, the economic concerns rapidly vanished.
Net Zero commitments are another example of alarmist-driven economic self-harm. There have been plenty of ‘despite climate change’ headlines already.
The Net Zero constraint on our economies could evaporate with the swish of a pen too. And unleash a vast wave of economic growth, jobs, tax revenue and stock market gains.
But here’s the thing to notice about Brexit, pandemic lockdowns, green energy and tariffs…
The stock market was the first to call BS on Project Fear
Stocks figured out these crises were overblown early on. Some might even call them ‘Fake News’.
The UK’s FTSE100 rose 25% in the two years after the referendum.
It only took stocks a year to recover from a pandemic that featured lockdowns!
As mentioned, it took a month for stocks to recover from the tariffs.
I don’t think renewables will ever recover from their current plight…
Sure, the ups and downs were extreme during the pandemic and tariff tantrum. But the speed of the recovery proved the economic aspects of the crises were mere showmanship both times. And we have since come to discover ‘the science’ of 2020 lockdowns wasn’t much better.
All this stands in stark contrast to the genuine economic crises of the past…
It took stocks many years to recover from 2008. More than a decade in many countries.
Japan took decades to recover from its bubble.
Inflation in the 70s sent the Dow Jones Industrial Average back to its pre-World War I level.
Those are proper stock market busts. The real deal.
Instead, these days, we keep getting a boom while the media warns of doom…And stocks figure it out before the rest of us.
Perhaps that’s the sign of a real crisis. Whenever the media and central banks tell you there’s nothing to worry about, like they did in 2007…
Jim Rickards explains why this boom has legs, and how you can profit, here.
And on Wednesday, he’ll reveal the latest way to harness an even bigger bull market. So, stay tuned.
Until next time,
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Nick Hubble,
Editor, Strategic Intelligence Australia
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