Ear to the Ground

11 April 2025

“Stop, look and listen before you cross the road.  Use your eyes, use your ears, and think!”

When I was young, admittedly a long time ago, the above was the verse which was preached to me as a way of remembering the green cross code.  There have been other connotations since, but the message remains the same.  It has been a lesson which has actually been very pertinent to investment markets this week. 

The announcement of the reciprocal tariffs by the US, as we reported last week, has caused a high level of uncertainty within investment markets.  The sell off which began at the end of last week continued into this.  Whilst clearly painful for investors, it appeared to be a market reaction which the authorities were willing to accept.  Movement in bond markets however was less tenable.  On the 4^th April the US 10 year Treasury yield closed at just under 4%.  During this week, however, we have seen the yield rise markedly.  At present it currently stand above 4.5%.  Not only does this create potential capital losses for investors it also has an impact on the fiscal policy and its credibility.

In a move which clearly took investors by surprise, Trump placed a 90 day pause on the placement of his tariffs.  This caused US equity indices to rally sharply.  The gains posted were of such a magnitude that they represented a move of c.9.5 standard deviations relative to a normal daily move.  To put that into context, work from Alexander Altman and Barclays Investment Bank shows that 9 standard deviation events are only meant to occur once every 13.7 billion years!  Those investors who were unfortunate to not stop, look and listen, potentially selling out at the low price seen this week, would have missed out on this sharp recovery.

The only country not to see a pause in a tariff being placed on them was China.  This was due to the fact that they had already placed retaliatory tariffs on the US.  For now, it appears that neither side are willing to back down, taking in turns to raise tariffs against each other.  It has become very akin to a game of high stakes poker, with each party willing to raise in the belief that they have the strongest hand.  Unless we see one party fold, a call at some point must be made.

All in all, the pace of change in markets this week has been extreme to say the least.  Not taking the time to review however, and succumbing to knee jerk reactions, could have made your investor journey this week more painful.  As research from Arbion below shows, equity markets, even after the worst 5 day trading streak, have typically gone on to perform well, albeit at a different pace, over time.