Global financial markets experienced volatility on Friday as investors grappled with uncertainty surrounding U.S. President Donald Trump’s policy initiatives and the upcoming German elections. While Wall Street saw declines, European markets edged higher. Oil prices retreated over 2%, and gold prices eased from record highs.
President Trump’s recent announcements of tariffs on key U.S. trading partners and his campaign to reduce the federal workforce have injected uncertainty into the markets. Joshua Wein, portfolio manager at Hennessy Funds, noted that while spending cuts and layoffs were anticipated, the rapid pace of implementation has introduced a new level of uncertainty. This sentiment was echoed by Friday’s data revealing a 17-month low in U.S. business activity, suggesting growing unease among businesses and consumers regarding the administration’s policies.
This uncertainty fueled losses in major U.S. indices, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all closing lower, driven by declines in industrial, consumer discretionary, technology, and energy stocks. These losses extended throughout the week, resulting in negative weekly performance for all three indices.
In contrast, European markets, which had been volatile leading up to Sunday’s German election, showed signs of recovery. The Stoxx 600, a broad European index, climbed 0.52%, reversing two days of losses and ending the week with a 0.26% gain.
Specifically, the Dow Jones Industrial Average fell 1.69% to 43,428.02, the S&P 500 dropped 1.71% to 6,013.13, and the Nasdaq Composite slid 2.20% to 19,524.01. Globally, MSCI’s All-Country World Index declined 1.03% to 874.59, reflecting a 1.09% weekly loss. However, MSCI’s broadest index of Asia-Pacific shares outside Japan saw a 1.35% surge, reaching its highest point since November 8 and posting a 1.47% weekly gain.
Meanwhile, several Federal Reserve officials, including Governor Adriana Kugler and Atlanta Fed President Raphael Bostic, indicated on Thursday that cooling U.S. inflation could pave the way for future interest rate cuts. This sentiment contributed to a 7.2 basis point drop in the yield of the benchmark U.S. 10-year Treasury note, which settled at 4.427%.
Wein observed that the equity market is currently pricing in more interest rate cuts than the bond market. He suggested that short-term market volatility stems from prevailing uncertainty, while long-term prospects hinge on the potential for tax cuts, deregulation, and the influence of free market forces on the economy.
10-year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
In conclusion, global markets remain sensitive to policy shifts and political events. While President Trump’s policies have introduced significant uncertainty, potentially impacting future interest rate decisions, European markets demonstrated resilience in anticipation of the German election. The interplay between these factors will continue to shape market trends in the coming weeks.
