Uncertainty Thy Name Is Trump

 

It’s Memorial Day Weekend, when many Americans will hit the beach—at least those who got away early will, before the storms hit.

The markets, too, are going through a “just when you thought it was safe to go back in the water” moment. And the big storm–or shark– that’s looming is named Donald J. Trump.

Earlier this week, markets rallied when it looked like the U.S. and China had agreed to a partial trade agreement that didn’t include heavy tariffs or specific dollar reductions in the trade deficit.

But just as soon as the media lambasted the president  about that, he pivoted to a harder-line stance, telling the Commerce Department to determine whether imports of automobiles and auto parts constituted a threat to “national security.” Yes, you read that right.

On Thursday, he pulled out of the proposed summit with North Korea, telling its president. Kim Jong un, that they had had a “wonderful dialog” and he was “very much looking forward to being there with you.” But, unfortunately, Trump was just not into him.

What happened?

Well, of course, stocks sold off. The Dow Jones Industrial Average, which was about 100 points away from 25,000 on Wednesday, lost ground the rest of the week and now is almost 2,000 points below its January 26th all-time high. The S&P 500 index also fell, and it remains around 150 points below its record peak.

Meanwhile, the yield on the ten-year U.S. Treasury note, which pierced the 3% resistance level  last week, slid to 2.94% Friday as investors fled stocks for less risky government bonds.

And the CBOE Volatility index (VIX) jumped back near 13 Friday after having declined for most of the week. Apparently risk is back, and investors are trying to figure out just how to price it in.

The sad truth is, they probably can’t, because the principal risk is in the occupant of the Oval Office.

As his actions with trade and North Korea show, President Trump is literally unpredictable, meaning no one can reliably predict what he’s going to do next.

For his supporters, that’s exactly the point—keeping America’s adversaries off guard in negotiations while shaking up the status quo in Washington on both the domestic and foreign-policy front.

For his critics, he’s reckless and erratic, making it difficult for allies (like Japan and South Korea, which did not get a heads up that the summit was canceled) to know where they stand, and making decisions based  on his “gut” rather than the advice of experts.

This is how he is–he won’t change and that’s why investors need to get used to more volatility and uncertainty as long as he’s president.

 

 

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