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The view from the summit doesn’t look so good.
Clouds and vertigo have tempered the S&P 500’s new all-time highs in the form of heavy tariff threats, brewing discontent from trading partners and political allies, and a growing apprehension that inflation’s reacceleration — just barely under control — will only get worse.
Investors are still riding the momentum of the Trump bump and the continued growth of corporate earnings. The S&P’s new heights and swelling portfolios can attest to that. But the stock charts also seem to be masking the anxiety of the current moment, which has seen consumer sentiment fall to a seven-month low.
Why does it feel like a storm is coming despite the market’s fear gauge, the CBOE Volatility Index, showing calm seas?
Perhaps it’s because things look… different. As Josh Schafer wrote yesterday, European stocks are beating American stocks. People are especially excited about gold. And the frothy meme stock and crypto enthusiasm has faded. Even the Magnificent Seven aren’t very magnificent, with Meta Platforms (META) breaking away. To be clear, these aren’t bad things. But they add to an unfamiliarity, a cousin of anxiety that’s been brewing.
“Short-run market and economic expectations, fear and doubt index, and inflation all moved in negative direction by magnitudes not seen since 2022,” Andy Reed, Vanguard’s head of investor behavior, wrote in a note Wednesday on Vanguard’s investor sentiment survey, pointing out falling expectations for GDP and the stock market. “It looks like 2022 all over again, but this time is different.”
The elephant in the room is, of course, inflation — the figure behind both the poor consumer sentiment numbers and some of the market’s recent moves. And they all come back to the biggest GOP elephant of them all, President Trump.
The latest round of tariffs, announced earlier this week, were fresh 25% levies on imported cars and similar duties on pharmaceuticals and semiconductors. They wouldn’t kick in until later in the year, giving time for foreign companies to bring investments and operations to US shores. At least, that’s how Trump says things could unfold for those transactional-savvy entities wishing to avoid the duties.
But even the threats of tariffs matter: Just look at lumber futures, despite the Canadian reprieve.
