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Thirty years ago, I was fascinated by the concept of “social silence.” Or, ideas advanced by intellectuals such as Pierre Bourdieu have advanced what we are doing. do not have Speaking is more important than what we do.
Now this silence is drooping wildly across the market. This week there was a terrifying noise cacophony about geopolitical events. It is symbolized by President Donald Trump’s warning that America “may or not” Israeli attacks on Iran.
And pessimistic economic data continues to roll. Last week, World Bank I reduced that prediction For global growth (2.3%) and the US (up to 1.4%) – if Trump’s so-called “liberation day” tariffs expire on July 31, we warn that “world trade will be seized later this year.” This week, the Federal Reserve significantly downgraded its US growth forecast and raised its inflation forecast. This is equivalent to stagflation light.
However, US stock markets have been quietly creeping up in recent weeks, rising more than 20% since early April. He recovered from the moment he was disappointed after the “liberation day” tariff announcement. Certainly, they are close to record highs. Additionally, the 10-year bond yield was 4.4%, a percentage point that is almost higher than last fall levels, but these have also been stable recently despite the worsening US fiscal projection.
So today’s big market “silence” appears to be not an expression of escalating risk, but rather a lack of investor panic to date.
What is behind this silence? There may be one explanation for what my colleague Robert Armstrong has It is called the “taco” effect – Estimates that Trump is constantly driving out the chickens to his threat. The other is the second problem of “t”. It’s a time lag.
For example, the central bank of Denmark I recently studied How has the stock market responded to the trade shock since 1990? The survey states that trade policy uncertainty is [has] A significant negative impact on economic activity. . . It takes up to a year for the effects to be achieved. ”
Similarly, the bank warned last week that it faced “a major negative contribution of uncertainty to both investment and production growth.” However, we calculate that the biggest impact on investment will occur in 2026, until next year, it corresponds to the 2% lower capital expenditure rate of US and Japan.
Apart from that, many studies have emerged showing Trump’s threat to expel millions of undocumented workers It could hurt the US economy. The immigration and customs forced attacks are currently grabbing headlines, but for several years there has been no real economic impact. To quote one example: Peterson Institute considers If 1.3 million migrants are deported, this will reduce GDP by “just” 0.2% this year, but by 2028 it will decrease by 1.2%.
In addition to this, there is a third possible explanation for disaster fatigue. More specifically, investors are faced with a misguided shock overload, being (at best) fully adapted to handling pain without panic, or (at worst) so unsure that they can’t handle it.
If necessary, this is called the issue of “death from 1000 cuts.” Currently there is no obvious shock large enough to cause a market crash. Yes, this would certainly hurt if oil jumped over $15 amid the Middle East War and further escalation of the Strait of Hormuz closure. The scenario cannot be discounted as Israel’s first attack on Iran “has been caught up in low inventory” and “a very large call position” (i.e. very large call position” (i.e., derivative bet) were unlocked.
But so far, oil prices are around “just” $75 barrels. What investors are facing today is not a concrete, impending disaster, but the risk of the looming tail. Or to use another analogy: the market is tackling spreading economic cancer in the form of metastasis uncertainty about future wounds, not a single “heart attack” shock (during the Covid-19 pandemic). This is not 2020.
Therefore, a short explosion of market volatility measured by the VIX index will die. This is also why messages from different asset classes are inconsistent. “U.S. stocks behave like Trump and are chasing short-term victory.” Jack Ablin says, Chief Investment Officer of Cresset. “Long bonds behave like that [Elon] Musk clings to long-term, unpleasant truths. ”
And here we go back to the issue of social silence. When investors try to analyze the risk of a confused tail, most are plagued by deep doubt. This means it may not take much time for the stock market to break. But that also means no one knows when (or if) this could happen. Sometimes it is certainly the loudest silence of all.
gillian.tett@ft.com
