A new round of tariff impositions, threats and walk-backs from US President Donald Trump sent markets reeling and introduced a new age of trade uncertainty. The Nasdaq Composite and the S&P 500 both moved into correction territory (10% down from all-time highs) this week as investors reacted to Trump’s tariffs amid growing fears of a ‘Trumpcession’. This is the worst start of a new presidential term for US equities since 2009.
Markets started falling on Monday as investors anticipated the introduction of 25% tariffs on all aluminium and steel imported into the US as of 12 March. In response, the European Union (EU) and Canada announced retaliatory tariffs amounting to $28 billion and $21 billion respectively on a range of US goods. This has prompted Trump to threaten to introduce more duties in response, with the danger that escalation could dampen growth and spike inflation around the world.
The trade war rhetoric has shaken markets already unnerved by Trump’s introduction of higher tariffs on China in February. Imports from Canada and Mexico were given a month’s reprieve at that time, only for Trump to hit both nations with uniform 25% tariffs from 2 March. Just days later, he decided to exempt some goods from the two neighbouring countries, which are the US’s largest trading partners.
Markets are still trying to make sense of what Trump’s end-game is. Is it his goal to encourage reindustrialisation of the US through imposing trade barriers? Does he aim to use tariffs to raise the funds to pay for income tax cuts for corporations and the wealthy? Or is Trump playing hard ball to get better deals with trading partners he considers to be treating the US unfairly? Could he even be hoping to achieve all these goals at once?
CEO’s and investors who have, up until now, reassured themselves that Trump’s tariff tantrums were a negotiating tactic are starting to worry. This week, more than 100 top US business leaders met with the president in a plea for him to desist from destabilising the economy with his on-again, off-again tariffs. But with even more tariffs scheduled to take effect on 2 April, their pleas have fallen on deaf ears.
Trump has said there will be a ‘little disturbance’ as markets adjust. Investors are bracing themselves for upheaval at a time when the job market is already slowing and consumer confidence has started to wane. Many economists are now predicting higher inflation and slower growth than they had previously forecast because of the tariff commotion (and other Trumpian policies, like the crackdown on immigration and the downsizing of government). In the worst instance, some see a painful period of deglobalisation to come.
Yet for now, the US employment report shows continued job growth, inflation remains stable and corporate earnings forecasts, although not spectacular, have not been downgraded. The most recent economic data points don’t reflect a picture of economic doom. (However, this view would change in the event of extreme policy implementation).
As author, philosopher and former executive Mike Brock notes, one of the dangers is that market pessimism and uncertainty can reshape the economic reality. The “animal spirits” Keynes spoke of — the emotional and psychological forces that drive human economic behaviour — are compelled to take action rather than wait on the sidelines. If investors believe they face decline or uncertainty, brace for volatility.
Brock writes: “Investors aren’t just computing probabilities; they’re trying to make sense of a shifting landscape where the old rules may no longer apply. The animal spirits are restless, sensing a change in the environment before it fully manifests in the data…But markets don’t simply reflect reality; they construct it through the stories they tell and the beliefs they hold.”
And then there is the “wealth effect”: Moody’s calculates that the richest 10% of American households make up almost half the country’s consumer spending and own half the stock. The ratings agency estimates that for every $1 decrease in net worth, consumer spending declines by 2 cents. This is an example of how low market confidence can contribute to lower consumer spending — which may lead to decreased corporate earnings that depress stock prices.
From a Dynasty perspective, we aim to understand how the “animal spirits” are driving the markets without being governed by them ourselves. Trump is sure to cause market volatility over the duration of his term. Amidst the noise, macroeconomics and earnings outlooks remain the crucial factors beyond short-term equity market performances. We are attuned to the possible structural effects of Trump’s policies but will not let short-term turbulence dictate our investment approach.
“Most, probably, of our decisions to do something positive can only be taken as the result of animal spirits — a spontaneous urge to action rather than inaction and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”
– John Maynard Keynes, British economist
“The stock market is good at forecasting the future because it helps create it.”
– Doug Ramsey, Leuthold Group’s chief investment officer
Global News
- US President Trump’s unpredictable trade policies have caused significant market volatility, leaving Wall Street traders and investors dazed and confused. His willingness to disrupt global trade norms has rattled confidence. Traders are now fleeing US assets amid a stock market selloff and growing fears of a recession. The Nasdaq 100 saw a $1.1 trillion drop, while the euro and Chinese stocks have gained. Traders are seeking safety in assets like the yen, euro and government bonds.
- Trump campaigned on promises of an unprecedented economic boom but is now facing the challenges of governance as economic uncertainties grow. His 25% tariffs on steel and aluminum imports sparked immediate retaliation from the EU and Canada. The EU imposed counter-tariffs on €26 billion worth of US goods, targeting items from bourbon to motorcycles, while Canada announced 25% tariffs on $20.8 billion in US products. Although Trump later exempted Canadian goods under the North American trade agreement, incoming prime minister, Mark Carney, insists that Canada’s retaliatory tariffs will remain until the US commits to free trade.
- Trump has also imposed wide-ranging tariffs against China, all major exporters and most countries across the world. These tariffs target goods such as steel, aluminum, copper, consumer products, cars, chips, pharma, food imports, timber and lumber. Adding fuel to the fire, Trump threatened yesterday to impose tariffs of as much as 200% on all wines and spirits coming out of France and the EU.
- In the UK, the stiff upper lip was much in evidence as Prime Minister Keir Starmer said that while he was “disappointed” by US tariffs affecting that country, the UK wouldn’t retaliate immediately while reserving the right to do so in due course.
- The escalating US trade war is being felt in France, where the economic growth outlook has worsened. The Bank of France cut its 2025 growth forecast to 0.7% (from 0.9%) and its 2026 forecast to 1.2% (from 1.3%), marking its weakest expansion since the pandemic. While risks remain, potential upsides include increased defense spending. The bank also lowered inflation forecasts for 2025 and 2026, citing softer services and reduced energy tariffs. Domestic consumer spending is expected to support fiscal targets despite the slowdown.
- Goldman Sachs has lowered its year-end target for the S&P 500 Index to 6,200 from 6,500, reflecting reduced US GDP growth forecasts, higher tariff assumptions and increased economic uncertainty. (However, this revised target is 12% higher than yesterday’s closing price of that index). The bank also cut its 2024 earnings growth forecast to 7% from 9% and reduced the price-to-earnings ratio by 4%, blaming risks from Trump’s trade policies and government job cuts. Goldman’s CEO David Solomon said headwinds from tariffs are hampering dealmaking activity and business chiefs seek clarity on policy direction. Meanwhile, Goldman raised its earnings growth outlook for Europe’s Stoxx 600, citing a stronger economic outlook and a weaker euro.
- The US labour market showed resilience in January, with job openings rising to 7.74 million and layoffs falling to their lowest level since June according to monthly Bureau of Labor Statistics data published on Tuesday. The data contrasts with recent signs of a slowdown, including rising unemployment claims and a February unemployment rate of 4.1%. Despite the positive January figures, concerns persist about labour market softening, with financial services firms announcing layoffs and other sectors lowering expectations.
- The US House of Representatives passed a stopgap bill on Tuesday to fund the government through September 30, narrowly avoiding a partial shutdown. The bill, approved by 217-213 in a near party-line vote, maintains current funding levels but includes cuts to some domestic programmes, offset by increases in defence, veterans’ care and border security. It now heads to the Senate, where at least seven Democratic votes are needed to pass it by today’s deadline. The bill’s passage reflects ongoing partisan tensions over government funding and Trump’s efforts to shrink the federal workforce.
- Ukraine has agreed to a US-proposed 30-day ceasefire with Russia, prompting Washington to resume military aid and intelligence sharing suspended in February. Suspicions were that Russian President Vladimir Putin would drag out the negotiations and he didn’t disappoint. After a day of mixed messages on Thursday, news emerged overnight that he’s generally in favour but has issues he wants to discuss with Trump. Earlier in the week, the US and Ukraine agreed to expedite a deal to develop Ukraine’s critical mineral resources. Security guarantees for Ukraine were also discussed, though specifics weren’t disclosed.
- Since Trump’s inauguration, five billionaires, including Elon Musk, Jeff Bezos and Mark Zuckerberg, have lost a combined $209 billion in wealth according to the Bloomberg Billionaires Index. Initially, markets surged following Trump’s election but since he took office, tariff uncertainties have seen the S&P 500 drop 6.4%, wiping off $1.39 trillion in market value. Musk has been the worst hit, losing $148 billion mostly from the Tesla crash (details later) and Bezos lost $29 billion. Sergey Brin’s Alphabet shares fell and cost him $22 billion while Zuckerberg and Bernard Arnault dropped $5 billion apiece.
- Tesla’s stock has plummeted 52% from its December peak, becoming the S&P 500’s worst performer this year. Even Elon Musk’s loyal fans and long-term investors are hesitant to buy the dip, fearing further declines. Trump’s symbolic purchase of a Tesla provided a brief boost, but concerns over Musk’s focus on government efficiency, falling global sales and negative sentiment persist. Analysts have lowered price targets and delivery estimates, citing weak demand and Musk’s political involvement as brand risks.
- Adobe provided a tepid revenue outlook for the current quarter, forecasting sales of $5.77 billion to $5.82 billion, slightly below analysts’ expectations. Despite integrating its AI model, Firefly, into products like Photoshop and Premiere, investor concerns about competition and AI’s impact persist. Shares fell 3% after hours, adding to a 24% decline over the past year.
- Apple is preparing a major software overhaul for its iPhone, iPad and Mac devices. An update later this year will introduce a unified design language across platforms, inspired by the Vision Pro’s interface, featuring updated icons, menus and navigation systems. The changes are expected to be revealed at Apple’s Worldwide Developers Conference in June.
- As at Thursday’s close the S&P 500 was 4.3% down for the week.
Local News
- In his budget announcement on Wednesday, Finance Minister Enoch Godongwana opted for a phased VAT increase of 0.5% annually over two years instead of an immediate two percentage point hike. This compromise follows opposition from political parties and civil groups. The revised budget, aimed at resolving coalition disputes, still faces resistance, notably from the DA, EFF and uMkhonto weSizwe Party. Voting on the budget begins on 2 April. Gain access to the key budget insights, presented by Stanlib’s Kevin Lings by clicking here. (The 13-minute webcast is well worth viewing).
- Treasury has acknowledged that increases in the personal income tax rate would reduce the incentive to work and save and would have potentially larger negative impacts on the economy. This is an encouraging statement and reinforces our opinion that South Africa is not likely to introduce a wealth tax in the foreseeable future.
- The government has resisted the temptation to provide open-ended financial support to South Africa’s ailing SOEs. Effectively, a tough-love approach, this suggests that the government is adamant that the major SOEs, especially Transnet, need to undertake a process of structural reform that includes the use of private/public partnerships.
- Encouragingly, the Rand’s reaction to the National Budget was relatively muted despite some initial weakness in the hours ahead of the speech. The currency also appears to have, mostly, shrugged off concerns that not all members of the GNU have endorsed the budget proposals, especially the proposed increase in VAT. Despite this relatively muted outcome, the Rand remains vulnerable to South Africa’s numerous structural constraints, especially the continued underperformance of the economy and the heightened risk of negative attention from the Trump administration.
- The government highlighted that there are now only two outstanding issues in terms of SA’s Grey Listing and that the government is confident that these two issues will be resolved by the middle of the year. This means that there is a chance that South Africa could be removed from the Grey List before the end of 2025, although Dynasty believes that there is a measure of optimism in this outlook.
- Ramaphosa has confirmed plans to send envoys to the US to address diplomatic tensions, dismissing claims that his administration was sidelined by groups like AfriForum and Solidarity. South Africa is preparing a package of trade deals to present to the Trump administration, aiming to appeal to its transactional approach to foreign policy. SA, which relies on the US as its second-largest trading partner, is lobbying to remain in the African Growth and Opportunity Act (AGOA) before it expires in September.
- Meanwhile, SA and EU are embracing after both suffered Trump abuse. The details were announced after a summit in Cape Town yesterday with the EU pledging an R94 billion investment package for SA focusing on areas like mineral processing, green hydrogen, renewable energy and vaccine production. The investment strengthens EU-SA ties as SA chairs the G20, a platform the US has avoided. The partnership aims to boost trade, which has grown 42% since 2016 and support SA’s clean energy transition.
- South Africa will invest R1 billion to boost local production of new energy vehicles, batteries and related manufacturing. As the region’s top automotive hub, the country aims to attract R30 billion in private-sector investment through incentives. The 2023 Electric Vehicles White Paper outlines a transition to EV production by 2035. The Treasury also plans a regional critical minerals strategy to support battery production. The industrial development support programme will enhance infrastructure investment in key sectors, encouraging manufacturers like Toyota, Ford, Isuzu, Volkswagen and Mercedes, among others.
- JPMorgan downgraded SA equities to “neutral” from “overweight”, on Tuesday citing concerns over slow economic growth and the effectiveness of reforms. Despite optimism around Ramaphosa’s reform agenda and improved power availability, growth is unlikely to exceed 2% in the next two years. The brokerage prefers Emerging European equities within the CEEMEA region but ranks SA stocks above those in the Middle East and North Africa. It expects foreign investors to adopt a “wait-and-see” approach due to challenges like strained US-SA relations over land policy and the ICJ case against Israel.
- Absa Group reported 10% growth in full-year headline earnings, reaching R22.06bn as South African operations improved significantly. Total income rose 5% to R109.9bn, with headline earnings per share (HEPS) at 2,662.2c. Local earnings grew 14% to R15.9bn while its Africa region’s earnings increased 8% to R6.2bn. The group declared a 7% higher dividend of 1,460c per share.
- Standard Bank reported a 4% rise in full-year headline earnings to R44.5 billion, driven by balance sheet growth, lower credit impairments and strong performance in Insurance & Asset Management. Loans and advances grew modestly by 2%, with corporate lending up 5% due to energy and infrastructure investments. The bank declared a 6% higher dividend of R15.07 per share.
- As at the time of writing, the rand was flat against the dollar and the ALSI was 0.9% down for the week.
Sources: Dynasty, Business Report, BusinessLIVE, BusinessTech, News24, TechCentral, Newsweek, TimesLIVE, Analytics Consulting CNN, Bloomberg, Wall Street Journal, Reuters, BBC, CBN, Daily Maverick, etc.
