By Saqib Iqbal Ahmed
NEW YORK (Reuters) -President Donald Trump’s first 100 days in office, set to deliver the worst start for stocks since former President Richard Nixon’s second term in 1973, have stoked volatility across markets and created expectations of a semi-permanent state of uncertainty.
Expectations for near-term volatility in stocks, bonds and currencies have all leaped higher as investors game out the fallout from a rapidly changing landscape for trade.
In early April, the Cboe Volatility Index – an options-based barometer of investor anxiety – closed at a five-year high while FX and bond market volatility gauges also rallied. Measures of volatility have since come back but are still above pre-inauguration levels.
Stock volatility futures several months out show investor expectations for heightened volatility to persist.
“I think they’ve injected a sort of a semi-permanent uncertainty here,” Matt Thompson, co-portfolio manager at Little Harbor Advisors, said.
Worries over how tariffs will affect economic growth, consumer spending and inflation drove the S&P 500 sharply lower from the record high touched within a month of Trump taking office, sending the index to the brink of confirming a bear market.
While stocks have recovered ground, the index is on track to end the first 100 days since inauguration down approximately 8%, marking one of its worst performances for a post-inauguration period.
The dollar also appears shaky, with the dollar index down about 9% in Trump’s first 100 days, the index’s worst showing ever for a President’s initial months in office, suggesting investors are viewing U.S. assets with skepticism.
For the 100 days, U.S. Treasury market returns as measured by the ICE Bank Of America United States Treasury Index, however, were the second highest in recent presidential history, after former President Bill Clinton’s first term.
“We’re facing a secular shift in global trade that began in the early 1980s,” Jack Ablin, chief investment officer at Cresset Capital in Chicago, said.
While a temporary pause on some tariffs has calmed nerves somewhat, investors are increasingly unsure if the world has changed for the foreseeable future.
Wednesday marks the second Trump administration’s first full 100 days.
The White House did not comment on the market declines in the second Trump administration’s first 100 days, but highlighted progress made on curbing inflation as well as investment pledges by major companies.
“Within 100 days of President Trump’s second term in office, Americans saw the first monthly price drop in years in the March inflation report, while industry leaders ranging from Apple to Hyundai to Nvidia have made trillions in historic investment commitments to reshore manufacturing back to the United States,” White House spokesperson Kush Desai said.
HISTORICALLY LARGE DECLINES?
Past instances where there was a poor start for markets include former President Richard Nixon’s second term and former President George W. Bush’s first term.
“While that does not necessarily doom the market for his entire term, it is not unreasonable to suggest that it could set the tone for his term, based on history,” Matt Gertken, chief strategist for geopolitics and U.S. politics at Montreal-based investment research firm BCA Research, said.
During first 100 days of Nixon’s second term stocks tumbled amid rising inflation and growing political uncertainty surrounding the Watergate scandal, with the S&P 500 dropping 9.9%. The index had lost nearly a third of its value from inauguration date by the time Nixon resigned on August 9, 1974.
The S&P 500 fell 6.9% under Bush, hurt by the bursting of the dot-com bubble, going on to drop about 12% for the whole of the first term.
TRUMP II VS TRUMP I
When compared with Trump’s start to his first term, this 100 days have also seen more extreme declines.
The dollar slumped about 12% against a basket of currencies in about a year of Trump taking office in 2017. This time around the buck has tumbled nearly as much within 100 days.
But while the slump during the early days of the first term was attributed by analysts to a later-than-expected arrival of Trump’s confrontational trade policies and an unexpected rise in global growth expectations, this time around the buck has been hit by Trump’s protectionist agenda on trade.
That has led investors to question the dollar’s role as a haven in times of economic uncertainty.
Thierry Wizman, Global FX & Rates strategist at Macquarie said the “biggest lesson of the first hundred days” was that the U.S.’ policy agenda was “a negative for the dollar.”
The White House’s Desai previously told Reuters that the Trump administration is committed to protecting the strength and power of the U.S. dollar.
For stocks, Trump’s first term’s initial 100 days saw a gain of 5%.
For the whole of Trump’s first term, stocks rose nearly 70% while the dollar fell about 10%.
Still, some investors expect the pace of action to ease.
“The first 100 days were not an anomaly, but the pace and the velocity of the activity is likely to slow down a bit because the administration is moving into things that happen more slowly,” Shannon Saccocia, chief investment officer at Neuberger Berman Private Wealth, said, referring to the Trump administration’s plans for extension and expansion of tax cuts.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Suzanne McGee, Lewis Krauskopf and Carolina Mandl; editing by Megan Davies and Anna Driver)
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