Don't just do something, stand there

The last twenty four hours are a classic illustration of how dangerous it can be to invest reactively, and why we try not to do so.

Yesterday, stocks and bonds were again being thumped by a combination of tariffs and 'basis trades' respectively.

This morning, with the next stage of President Trump’s cunning plan unexpectedly revealed to an admiring world, we’ve seen the biggest single-day rally in the S&P500 since 2008, and a retreat in long-dated yields. 'Liberation Day' and its fallout is after all looking more like noise than signal, and the best advice – as so often in investing – would have been 'Don’t just do something, stand there'.

Easier said than done of course. The news industry has been eating from Trump’s hand. Pundits have been super-quick in confidently proclaiming a new world of autarchy and reindustrialisation. Market moves have been scary, and we know that financial expectations can become self-fulfilling.

The reciprocal tariffs could indeed have done a lot of damage. They might yet do so: they seem to have been paused, with those on China still in place. In these circumstances, how many CEOs will happily sign-off new investments now, knowing that an offhand comment from the White House might threaten to turn their commercial world upside down? The US 'administration' may be tarnished. Meanwhile, in bond-land, there may still be margin calls on those more sophisticated traders (though we do wonder for how long the regulators will tolerate such residual leverage).

More generally, if we’re really open-minded, we have to acknowledge that sometimes the noise really is a signal, and work that possibility into our worldview (as with yesterday’s blog, some of which now reads like ancient history – thankfully). Sometimes it will make sense to do something.

For the moment, though, and despite the many, many loose ends, we’re sticking with Plan A. On a near-term view, we remain indifferent between stocks, bonds and cash. We’re neither especially bearish nor bullish, but waiting for an expensive US market to grow into its valuation, for (non-tariff) inflation risk to settle – and for some of that wider geopolitical mist to clear.

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