It was an unusually volatile session yesterday, which saw big swings across global equities, led by the US. After an initial blip up, all the US majors spent most of the day in negative territory, and the selling accelerated soon after the US open. But equities began to steady towards the European close, and stock indices bounced off their lows, before slamming lower once again in the last hour of trading.
These big swings saw the VIX, which measures volatility in the S&P 500, jump sharply. At its highest, it was up 18% from Friday’s close. The Dow, S&P and Russell 2000 all lost over 1% yesterday. Yet interestingly, the tech-heavy NASDAQ slipped a modest 0.4%. This was an indication of just how much the tech sector has been beaten up so far this year.
Source: TN Trader
US stock indices were all firmer across the board in this morning’s early trade. All this movement is simply a reaction to tariff headlines. Investors were thrown sideways after President Trump’s 25% tariffs on US imports of Mexican and Canadian goods came into effect yesterday. These had already been postponed from January, and investors were hoping for another stay of execution. That wasn’t to be.
This morning’s bounce-back followed comments from US Commerce Secretary Howard Lutnick who suggested that there was room for manoeuvre, and a softer approach could be announced later today. If not, then it seems likely that the sell-off will resume.
In fact, all US stock index futures began to give back early gains ahead of the open as hopes faded for a tariff reprieve. Canada, Mexico and China (which is also dealing with fresh tariffs) have either retaliated already or are preparing to.
President Trump has also suggested that the European Union is in his sights. US bonds have rallied sharply, as investors seek out alternatives to equities due to current uncertainty.
Yesterday the yield on the 10-year Treasury note fell below 4.20% to hit its lowest level since early December. That’s down from 4.64% less than a month ago. This may seem counterintuitive given the inflationary nature of tariffs. Yet a quick look at TIPS shows that the drop in yields is more likely a response to falling growth expectations.
A more positive explanation is that Elon Musk’s DOGE will slice through government expenditure, and thereby reduce future Treasury issuance.
As always, it’s probably a combination of factors. Currently, US stock indices look oversold when considering their respective daily MACDs. But that’s not to say they can’t go lower from here, in the absence of some positive tariff news.
It’s worth noting January’s slump in US consumer confidence, and Monday’s disappointing manufacturing numbers. There’s also been an unwelcome uptick in jobless claims. So, in addition to tariffs, Friday’s Non-Farm Payroll report may help to set next week’s tone as far as sentiment is concerned.
