This is not a correction. It is capitulation. So say some analysts, who are watching the markets today with the attention a doctor gives to a critically ill patient. This time, however, it is not a single organism on the operating table, but the entire global financial system.
The start of the week on the financial markets brought a veritable avalanche of sell-offs. The cause? President Donald Trump's political decision to introduce further tariffs, this time hitting China, the European Union and other countries broadly. The market reaction was immediate - futures on US indices signalled a dramatic start to the week:
- Dow Futures: -4.1%
- S&P 500: -3.9%
- Nasdaq 100: almost -5%
When politics becomes stronger than fundamentals
What was meant to be another stage in a trade war that has been running for years triggered the biggest sell-off since the COVID-19 pandemic. Investors, taken aback by the pace and scale of the actions, began to speak of a "wash-out" - the market's emotional capitulation. In total, USD 6.6 trillion in value evaporated from global stock exchanges in just a few days.
In Asia, the Nikkei index fell by almost 8% and the Topix by 6.5%, while in China the Shanghai Composite and Hang Seng lost 4% and more than 8% respectively. Beijing responded immediately: retaliatory tariffs of 34% on selected American goods.
Europe on the edge
Although Brussels has not yet responded directly, a set of retaliatory measures is ready, which could hit American heavy industry and the agricultural sector. Tension is also rising among European investors - indices in Frankfurt, Paris and Warsaw recorded sharp falls, and market sentiment is starting to resemble that of March 2020.
Fear and hope on Wall Street
The VIX index, the barometer of fear on Wall Street, crossed the level of 40 - the highest in four years. Some hedge fund managers say bluntly: "This was capitulation". Even so, data from Vanda Research shows that retail investors used the falls to buy - Thursday brought a record inflow of retail capital (USD 4.7 billion).
Is this the bottom?
Adam Turnquist of LPL Financial reminds us that "looking for the bottom is an art, not a science". But the hard data is striking: as many as 75% of companies in the S&P 500 index are trading below their 200-day averages. We saw similar readings in October 2022 - that was when an upward wave began.
However, the current uncertainty - both economic and geopolitical - means that any headline, tweet or press release can change the trajectory of the markets in an instant.
The Fed, inflation and labour market data
All eyes are now on the Federal Reserve. Solid labour market data does not dispel concerns - the upcoming inflation data (CPI and PPI) and US consumer sentiment will be key. How they are interpreted may decide whether the Fed opts for further interest rate moves - and thereby affect the entire global economic outlook.
How to survive stock market turbulence?
In times of turmoil it is worth remembering one thing: quality holds up. Experts at Argent Capital Management remind us that the best investment opportunities appear when fear grips the markets. Companies with strong fundamentals - such as Amazon or Apollo Global - may be available at exceptionally attractive prices.
Conclusions for investors and business owners
Today's situation shows how heavily the economy and financial markets depend on political decisions. In such an environment, appropriate asset protection, risk diversification and tax optimisation become crucial, including on an international scale.
If you are looking for secure legal and financial structures for your company or investments - contact our team.
We will help you get through the crisis with a cool head and an effective strategy.
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