Apr 14, 2025 - Business
Markets revisit familiar ground, and that has investors jittery
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Stocks, Treasury bonds, and the dollar are all trading at levels seen in the waning months of the Biden administration, when they caused almost no panic or hand-wringing.
Why it matters: Optimists will say this means nothing very serious is happening. Pessimists will say it just means that all three markets have much further to fall.
Where it stands: Compare Friday's close to where markets were at eight months ago, on Aug. 9, 2024.
- The S&P 500 closed at 5,363, which means that it has risen 0.4% over eight months. (Thanks to the weekend's news, it'll be higher still today.)
- The euro/dollar exchange rate closed at $1.13 on Friday, up a modest 4 cents from $1.09 in August.
- The 10-year Treasury bond now yields 4.5%. That's substantially higher than its August yield of 3.95%, but it's the exact level it was at 11 months ago, in May. Indeed, the benchmark Treasury has closed at or above 4.5% in 23% of trading sessions over the past 18 months.
Between the lines: Market commentary is panicky and jittery for four good reasons.
- The bear market: Thanks to the euphoria of Trump's early weeks in office, various markets including the Nasdaq last week fell to more than 20% below their all-time highs. When market watchers talk of levels like that as being "psychologically important," they're not downplaying them. In markets, psychology — what Keynes called "animal spirits" — matters a lot.
- Volatility: We've seen a sequence of massive moves in the stock market, which has never felt less predictable or more uncertain. While no one knows where we'll go next, it's clear that even bigger moves, especially to the downside, are well within the realm of possibility.
- Global fundamentals: President Trump has single-handedly rewired the entire global economy, switching it dramatically from a system with a trusted U.S. counterparty at the center to one where the U.S. is the source of all chaos. No one can predict what the final outcome of that move will look like.
- Corporate fundamentals: Credit spreads — the amount that companies need to pay to borrow money — have increased sharply, in a sign that liquidity is in short supply. Companies are expected to find capital to invest in reshoring their operations while also eating the cost of tariffs and paying more in debt-service costs — all while money is leaving the country. It doesn't add up.
The bottom line: Sometimes, in markets, the rate of change is more important than the absolute level. This is one of those times.
