06.04.25 - Biggest sell-off since pandemic - not over yet
Since the announcement of reciprocal tariffs by US president Donald Trump last Wednesday, financial markets have experienced their most significant sell-off since the pandemic-induced crash in 2020. Major indices have dropped by around 5% or more.
The Nasdaq has officially entered bear market territory, falling over 20% from its recent peak. Meanwhile, the sentiment remains deeply negative with the Fear and Greed Index registering its sixth consecutive week in “Extreme Fear” zone.
Markets (during Weekend): Nasdaq -1.8%, Dax -1.7%, Hang Seng -1.6%, cryptos with heavy losses, Bitcoin down 5%.
My view: As mentioned on Friday, I continue to see room for further downside. The process of risk unwinding by institutional investors could be just at the beginning. The recent spike in volatility is forcing them to reduce risk exposure in their portfolios in order to manage overall portfolio risk.
That said, the market could experience a bounce, should any news emerge that improves sentiment or supports a more positive outlook. Such a rebound however, could be used for unloading risks.
I am closely monitoring both market movements and the news flow. I do not see parallels to the pandemic-driven crisis. Back then, we faced a sudden, short-term shock that impacted on the global economy briefly, followed by swift and coordinated support from central banks and governments.
Today, the situation is different. The escalating trading war has the potential to spiral into a prolonged drag on global growth, ultimately increasing the risk of a broader recession.
During the pandemic, I invested all cash in three steps, one a bit too early, one near the bottom and one shortly after the initial rebound. This time is different though. Given how this current setup looks to me, I am avoiding reactive moves or speculative chases. I prefer to wait for clear and convincing signals before increasing exposure.
Based on the speech from Fed chairman Jerome Powell on Friday, there is not much room for the Fed to lower interest rates to calm down markets. “We are here to tell the truth. The truth is tariffs are pushing prices up and significantly slowing economy:”
The portfolio has remained relatively stable through the current market turmoil, so I see no need to make any significant adjustments at this stage.
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