With his tariff poker, US President Donald Trump is keeping the economy and the markets on tenterhooks. What that means for investing is explained by Philipp Dobbert, chief economist and Head of our Asset Management.
In April, the markets went on a wild roller-coaster ride. How do you put that in context?
If you look at the bottom line of how the stock exchanges fared in April, you might think: not much really happened. The S&P 500 and the Stoxx Europe 600 ended down by around one percent. Not especially pleasing, but not dramatic either. The DAX even posted a slight gain of 1.5 percent.
But: the roller-coaster ride in April was truly exceptional. In the S&P 500, for example, following a drastic slump there was the largest percentage single-day gain since 2008. Such pronounced movements down as well as up within such short spans of time happen very rarely. That said, things could remain volatile for a while yet.
The turbulence really got going after US President Donald Trump unexpectedly announced drastic tariffs on 2 April. These took effect on 9 April, but were largely suspended again for 90 days that same day. How did you experience that turnaround?
We had a Quirin Privatbank event on 9 April. It was mainly about the question of how to handle the price slide of the preceding days. A few hours later came Trump's decision. And the markets initially shot upward. In that moment, that was a huge surprise for me too. To my mind, the course of events is a prime example of the fact that market movements can't be forecast. And another piece of evidence that you shouldn't rely on forecasts in your investment strategy.
The prices of US government bonds, actually a safe haven, also went into a tailspin at times. There was talk of a "bond vigilantes" of the bond markets pushing back against the tariff policy ...
I find the term "vigilantes" - or "bond vigilantes" - a bit martial. I can't judge whether US President Trump really felt compelled to suspend his tariff demands because of the developments in US government bonds - as was partly reported. But it's certainly true that markets can rein in political power in some situations. And I actually find that thoroughly positive.
Economically, the situation is that with high tariff barriers, fewer dollars would be needed. In addition, speculation arose that international investors' confidence in the stability of US bonds could decline. Trump would quite welcome a weakening of the dollar. After all, he wants to make US exports more competitive. But given the high US debt burden, Trump certainly has no interest in rising interest rates on the bond market.
From the markets to the tariffs: in your view, what would be the best and what would be the worst thing that could happen once the grace period ends?
New tariffs are never good news for the global economy. You can't simply say that with new tariffs we're just dividing up the shared pie differently. With tariffs, the pie - that is, the global economy - gets smaller. New tariffs always mean losses of prosperity. For everyone involved.
The best case would be if what many people think turns out to be true: namely, that Trump mainly wants to create maximum commotion in order to get to negotiations. And if people agree on the most moderate tariffs possible, ones that place little burden on world trade. The worst case would be if the tariffs are reinstated in full and countered with retaliatory tariffs. As an economist, however, I don't consider it especially likely that the worst will come to pass. That would be a major economic mistake, one that would surely have political repercussions too. Midterm elections are already coming up again in the US next year.
Because there's so much uncertainty right now, wouldn't it be worth considering holding back for a while on investing in stocks and moving to the sidelines?
That sounds somehow reasonable, yet I strongly advise against it. Let's do a thought experiment: in April you saw a sharp downward movement. Now you're relieved that prices have recovered somewhat. And you're worried that another significant downward movement could occur. You get out of the market. The prices keep moving erratically for a while. On some days you feel vindicated. Then again you have doubts. Because at some point prices rise more strongly again. For example, because there's speculation about a tariff deal with the EU and then an agreement actually materializes.
If you're standing on the sidelines, the question is always: when do you get back in? On the markets, there's never a situation in which all questions are conclusively resolved and it's settled what exactly will happen next. What's clear is: if you're not invested, you miss out when prices rise. And what's also clear is: over the long term and on average, the stock markets have so far always risen. With diversification as broad as in our global ETF portfolio and with a long-term investment horizon, it's far more promising to stay calm and remain invested.
Read here why you can stay relaxed with us in any market situation, here.
