A Wild Ride Is the New Normal for U.S. Stocks

• April 04 2018
• Lu Wang, Sarah Ponczek

Stunned by the about-face in U.S. stocks? Get used to it.

Stunned by the about-face in U.S. stocks? Get used to it.

The S&P 500 Index roared back from a 1.5 percent plunge at the open to close higher, marking the sixth intraday reversal of at least 1 percent since January. That equals the total of the past two years, when stocks went virtually straight up on rising optimism in the economy.

Investors have been whipsawed by Washington’s changing policy priorities following President Donald Trump’s legislative wins on traditional pro-business policies like tax cuts. The administration’s now pushing protectionist proposals that are less eagerly supported by many corporate leaders, while the president ratchets up attacks on individual companies. The result is a market that’s grown increasingly reactive to tweets.

“This is very much headline driven,” said Quincy Krosby, chief market strategist at Prudential Financial Inc. “You can see how -- absent something that the market can focus on squarely, such as earnings -- the market is vulnerable to headlines, both for moving higher and moving lower.”

Wednesday’s turnaround had everything to do with trade talk. U.S. investors awoke to a 2 percent drop in S&P 500 futures after China issued a rapid response to American tariff proposals. By midmorning, officials from China and the Trump administration were leaving the door open to a negotiated solution that would avoid levies, which wouldn’t take effect for months.

Stocks got a boost when National Economic Council Director Larry Kudlow suggested on Fox Business that Trump’s bluster was part of a negotiating strategy to win better trade terms. He call the list of tariffs “a first step.”

The uncertainty emanating from Washington is a stark reversal for investors who’d grown used to months of market love from the president, particularly his $1.5 trillion tax overhaul and anti-regulatory stance. Trump’s recent calls for tighter regulations on Amazon.com Inc. have sunk shares of the nation’s fourth-largest company by market value.

Changes Coming

“What’s happened certainly over the past two months is the markets have lost a little bit of faith in Trump,” said Scot Lance, managing director at San Mateo, California-based Titus Wealth Management. “The Trump trade has been deteriorating.”

Of course, the market’s being tested by more than just the president’s tweets. The Federal Reserve remains steadfast in its push to tighten monetary policy, and stumbles at individual companies from Facebook Inc. to General Electric Co. have lopped off billions in value.

“Investors are trying to come to terms with the understanding that the market is not going to go up in straight line forever,” said James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $5.1 billion. “There are changes coming, whether it’s in monetary policy, trade policy or regulation, some of which have unknown element to it.”