On April 2, US President Donald Trump proposed fresh tariffs, causing a significant reversal in global markets’ attitude. The rally started with FOMO (fear of missing out) but swiftly became FOSI (fear of staying in). In just a few days, the market’s volatility index (VIX), which measures investor concern, increased from 15 to nearly 60.<\/p>\n
The ancient adage, “When the US sneezes, the world catches a cold,” has once again proven true. However, this time, the sneeze was self-induced. The sudden scale and basic technique of the levies surprised markets.<\/p>\n
To understand the market’s reaction, it’s worth recalling that similar steep reductions have only occurred twice in the past two decades: during the 2008-09 global financial crisis (GFC) and the 2020 Covid crash.<\/p>\n
However, there is a critical divergence. The COVID-induced selloff was a Black Swan event, an “unknown unknown.” On March 23, 2020 (my birthday), the S&P 500 reached a low of 2,191. Investors fled for safety. However, rapid policy measures and medical advancements helped stabilize attitudes. \u202c By the end of 2020, the index had recovered to 3,756, and a year later, it was at 3,910. \u202c Markets may take longer to recover, but they eventually do.<\/p>\n
The Trump Tariffs are similar to the Global Financial Crisis, creating a “known unknown” situation. \u202c Many seasoned analysts misjudged the systemic ripple effects despite warning indicators. \u202c In 2008, hedge fund manager John Paulson predicted the implosion of subprime mortgages. \u202c I was working with a prominent hedge fund in New York at the time, and the prevailing consensus was positive. Credit agencies gave AAA ratings to harmful assets, which quickly sold.<\/p>\n
Also Read:<\/strong><\/p>\n Connecting Cultures and Bridging Barriers Across Borders: Dr. Csilla Rostas<\/a><\/p>\n