ClockWise: How to trade Trump Slump

Stock markets sold off sharply, led by the US, as bullishness about tax cuts and deregulation gave way to worries about President Trump’s more controversial policies on tariffs and government layoffs.

While US recession fears are probably overblown, the chaotic on-off nature of the announcements is creating a degree of policy uncertainty last seen in the onset of the Covid-19 pandemic (chart 1). Our daily investor sentiment indicator is also now at its most depressed level since the pandemic (chart 2), with the reading featuring in the top 50 most extreme days since 1991.

With economic data unlikely to dispel concerns in the short term and Trump talking tough, things could get worse before they get better. However, historically it has usually paid to buy when others are fearful.

We’re modestly overweight equities in our multi asset strategies, but with a strong preference for European equities, up year to date, over the expensive US market.

Chart 1: US Policy Uncertainty and S&P 500 Volatility Index

Chart 2: RLAM Composite Sentiment Indicator and Global Equities

Note: The RLAM proprietary Composite Sentiment Indicator takes into account measures related to stock market volatility, private investor sentiment and company director buying. A reading of zero reflects average sentiment.

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.