Most investors anticipated potential turbulence this year following U.S. President Donald Trump's return to power in the world's largest economy and financial market. However, few predicted the extent of the volatility experienced thus far.
On the surface, global stocks remain nearly unchanged from where they began the year, and volatility metrics, such as the VIX, have not reached the peaks seen during the pandemic or the financial crisis.
A closer examination reveals significant developments. Gold, traditionally viewed as a safe haven, has recorded its best quarter since 1986 due to Trump's trade policies, while the dollar is on track for its worst start to a year since the 2008 financial crisis.
Equally striking, the 'Magnificent Seven' U.S. tech giants have faced substantial losses. Once a reliable source of profits, they have shed nearly $2 trillion and are being outperformed by rivals from China and Europe.
Nicolas Forest, Chief Investment Officer at Candriam, noted the remarkable shift in market dynamics. "The Trump trade has completely reversed," he observed.
Initially, investors were concerned that Trump's 'America First' policies would reignite inflation and hinder U.S. interest rate cuts. Now, the predominant risk has shifted to economic recession, significantly altering the landscape of the $140 trillion global bond market.
Benchmark U.S. Treasuries are projected to conclude the first quarter with a solid 2.7% return, as yields, a key indicator of borrowing costs, have declined by more than 20 basis points. In contrast, Germany's ambitious plan to increase defense spending—triggered by a reduction in U.S. military support—has driven German Bund yields up by over 40 basis points, marking the largest quarterly yield movement since 2023 and the first divergence from Treasury yields since 2021.
Meanwhile, Japan's 10-year JGB yields have surged to their highest levels since 2008, driven by expectations of further rate hikes from the Bank of Japan. At nearly 1.6%, JGB yields are set for their largest quarterly increase since 2003.
The dollar's 4% decline has provided emerging market currencies with a rare opportunity for appreciation. Trump's renewed engagement with Russian President Vladimir Putin has significantly bolstered the rouble, which has risen by 35%, despite ongoing sanctions in major economies. The Polish zloty and Czech crown, which could benefit from a resolution to the Ukraine conflict, have also gained over 5%. Even Mexico’s peso and Canada’s dollar are showing positive momentum, despite tariff-related challenges.
Michael Metcalfe from State Street Global Markets commented on the rapid unraveling of the dollar's strength this year. "There has been an element of taking what was stated at the beginning of the year and flipping it."
On the downside, the Indonesian rupiah has fallen nearly 7%, particularly following the detention of Turkish President Tayyip Erdogan's political rival. Additionally, the currency has reached its lowest point since the 1998 Asian financial crisis amid concerns about Jakarta's financial stability.
Bitcoin has mirrored its typical volatility, surging nearly 20% when Trump took office, only to plunge nearly 30% when his plans for a U.S. cryptocurrency reserve did not meet expectations.
Tesla's share price, compared to its primary competitor BYD, has also experienced a stark decline since inauguration day.
Oil prices have fluctuated due to supply and demand factors, as well as tentative ceasefires between Israel and Hamas and Hezbollah.
Gold has surged by 17%, while copper has made an unexpected rebound, increasing by 11%. However, raw arabica prices have risen 18%, nearly double their level from the previous year due to severe droughts.
The outlook for the second quarter does not appear promising. Trump is set to unveil his extensive global tariff plan, raising concerns among investors about the potential for triggering recessions. Neil Robson, Head of Global Equities at Columbia Threadneedle, notes that projections suggest effective trade-weighted tariffs on goods could rise from 2.5% to 10% or more.
Considering the possibility of a significant global downturn, Robson predicts, "We are either in for a significant risk-off period, or we are in for a rebound."