The FTSE 100 was under pressure again on Tuesday after an overnight US stock market rout rocked sentiment and demand for risky equities.
US equity indices were a bloodbath overnight, with the NASDAQ tumbling nearly 4%—the biggest one-day drop in two years. Tesla shares sank over 15%, and other ‘Mag 7’ shares fell sharply.
Donald Trump’s damaging trade war is at the centre of the stock market rout, with fears growing that the US may tip into a recession as a result of tariffs on its biggest trading partners.
Trump himself has refrained from ruling out a US recession caused by his policies, which, ironically, are likely to heavily impact his core voter base.
“During his first term as US president, Donald Trump often cited a rising stock market as being representative of his success,” said Dan Coatsworth, investment analyst at AJ Bell.
“As such, he will not want to see a full-blown market crash months into his second term. Quite what rabbit he could pull out of the hat to put markets back on an upwards path is unknown, but Trump might feel compelled to come up with something.”
Although there is no sign of the ‘Trump Put’, equity bulls will hope his approach to tariffs will soften given the market fallout. There will be a school of thought the recently imposed tariffs are an extreme negotiating tool that could well be reversed.
Analysts suggest that Trump’s approach to policy could provide benefits over the long term, but what they may be isn’t exactly clear, and there will likely be severe market disruption in the interim.
“The Admin are, for now, doubling down on the idea of ‘short term pain, for long term gain’, in the hope that macro headwinds can be blamed on the Biden Admin, and that Trump & Co will be able to claim credit for the economic, and market, turnaround that would likely follow. While I see how this might be politically expedient, juicing the economy just in time for the midterms, it’s rather economically incoherent, particularly for an Oval Office which claims to be more focused on Main Street, than on Wall Street,” said Michael Brown Senior Research Strategist at Pepperstone
“To be clear, if Trump & Co are able to cut federal waste, decrease the size of the government, and juice the private sector, as much as they are touting, then it gives me confidence that the long-run path of least resistance should continue to lead to the upside on Wall St. However, in the short-term, it remains difficult to advocate buying dips, with the bear case holding more weight for me.”
The FTSE 100 had shown signs of resilience amid recent sell-offs of US stocks, but that resilience, usually caused by a rally in defence and pharma stocks, was absent again on Tuesday.
London’s leading index was down 0.3% at the time of writing with Spirax leading the way lower.
Spirax shares fell 4% after reporting lower revenue and profit.
Housebuilders and miners offered some positivity and helped offset broad losses elsewhere.