What should one invest in given the prevailing environment of extreme uncertainties and volatility? Global equities are swinging wildly, racking up big gains and big losses on a daily basis. Even the market pros are confounded. Tariffs — and especially the worsening trade war between the US and China — will have a real impact on consumer prices, inflation, as well as cost of doing business and thus, growth, margins and profits for companies. Much of which we have yet to see materialise. US consumer confidence has tumbled but spending, thus far, remains resilient. US corporates are just starting to report their 1Q2025 earnings. Investors will be watching closely on what they have to say of the expected impact from tariffs. Though we doubt managements can offer much clarity. Case in point, Walmart, whose performance is typically stable and predictable, just pulled its financial guidance for the current fiscal year. We think earnings may see some big downward revisions. Given the heightened uncertainties, it is NOT the time to be aggressive on equities, US and globally.
What about bonds and especially, US Treasuries (UST) that are often seen as safe haven assets, more defensive and an alternative to equities in times of crisis? Well, not this time. Volatility in the UST market has spiked sharply higher, mirroring the volatility in equities. The ICE BofAML MOVE Index — the “VIX for bonds” — that measures the volatility for UST is now at the highest level since the Covid-19 pandemic and before that, the GFC (global financial crisis) (see Chart below). Indeed, the steep surge in the benchmark 10-year Treasury yields, by some 60 basis points from 3.89% (on April 4) to over 4.47% (April 9) — the steepest four-day jump in more than two decades — is one of the main reasons Trump blinked and offered a 90-day pause on reciprocal tariffs (except for China). We believe the sudden jump and volatile UST last week was driven by many factors — beyond the typical US Federal Reserve rates, growth and inflationary expectations. Fact is, UST are now moving in tandem with equities, less like a haven and more like a risky asset.
