Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years.
Stock markets have delivered their verdict on Donald Trump’s Liberation Day tariffs and the short answer is – they don’t like it.
A large cohort of the Magnificent 7 felt the heat, with Nvidia, Amazon, Apple, Meta and Tesla sliding between 5.5% and 9.3%, and even Microsoft’s 2.4% decline and Google-parent Alphabet’s 3.9% would be notable on most days.
Needless to say, the tech-heavy Nasdaq Composite’s 6% tumble stood out like a sore thumb, eclipsing the 2.7% slapping that Japan’s Nikkei 225 index received earlier in the trading session.
Cue headlines of a bloodbath on Wall Street and inane questions posed like whether Trump’s tariffs will kill your KiwiSaver as the S&P 500 dropped 4.8% on the day of liberation.
That’s a heady drop, but when your correspondent was asked by his beloved as to what all this meant, his overly glib reply was “a few headlines for a couple of days”.
That’s not to belittle a big daily fall, but let’s put it in perspective.
The March 2020 travel ban in the US triggered a 9.5% decline and was followed by a 12% slump for the S&P 500 when the Federal Reserve cut its key rate to a near-zero range and turned on the money printing presses once more.
When the US Treasury turned its back on cheeky banks seeking a bailout for their incomprehensible lending practices in September 2008, the S&P dropped 8.8%.
Heck, the 9/11 terror attacks in 2001 elicited an 4.9% decline when the New York Stock Exchange eventually opened.
And it doesn’t come anywhere near the 20% wipeout from Black Monday in 1987 or even the consecutive 10% and 9.9% declines in the 1929 Black Tuesday crash.
Would you still remember me?
And of course, a single daily decline might not necessarily make a season. While those examples were indicative of a fairly sharp decline, when the Dotcom bubble burst in March 2020 with a 4.3% decline, the S&P 500 still ended the quarter up 2%.
Investors in equity markets spend most of their time staring into their crystal balls, trying to decipher what the future holds, so while Trump 2.0’s trade war took them by surprise, it wasn’t an entirely unknown quantity.
Where investors might be a little more nervous is how the greenback reacted.
The US dollar index – which measures the world’s reserve currency against a basket of trading partners – dropped 1.5%.
That might seem small compared to some of the heady figures we see in equity-land, but during the height of uncertainty in March 2020, the biggest daily drop for the greenback was 1.4%.
Sure, part of that was because investors tend to flock to the relative safety of Lady Liberty’s green dollars when times get uncertain, but in 2025 that status as the world’s reserve currency is looking a little more shaky.
President Trump wants a weaker greenback to give American exporters a leg up when they march into foreign markets, but a stronger greenback would act as the automatic stabiliser to offset price hikes that will stem from his tariff regime.
And if investors want to pile into one of those platforms trying to second-guess foreign exchange markets, they’d best go in with their eyes wide open.
There’s a reason why currency markets were the first to react to the Brexit referendum in 2016, and why David Lange described them as reef fish – they move faster than anything else.
Things just couldn’t be the same
And let’s be clear, at a high level there’s no doubt that 21st Century trade wars bode ill for the global economy.
At an aggregate level, economic activity will be sucked out of the private sector as governments clip the ticket at the border and households will be left footing the bill.
Even for the likes of New Zealand, where the imposition isn’t overly punitive, our exporters – especially meat and wine – are facing a $900 million whack to their collective export receipts and subsequent cooling to domestic activity, without even taking into account the second-round impacts of those international earnings being put to work.
But as with all things, change offers opportunity and it’s a foolish expectation to think that all things will remain equal.
Take Fisher & Paykel Healthcare for example. During Trump’s first term when he tore up the North American free trade agreement, the medical device maker started looking for alternative manufacturing sites to its Mexican facilities.
Or rubber goods maker Skellerup’s efforts to head off the immediate impost of the tariff regime by taking out the scalpel to its operations.
And as Salt Funds Management managing director Matt Goodson points out, these times of upheaval open the door for active fund managers like himself to seek out an opportunistic bargain as the index-huggers follow the herd and funds concentrated in the biggest US stocks feel a sharper sting having previously enjoyed the tailwind of big money flows.
Trump’s new world order is definitely going to hurt, but that pain isn’t going to be shared equally.
Image from Mandy Ferrer on Unsplash.
