Originally published at: This week in charts: Trump tariff chaos – InvestEngine Insights
It’s been an incredible week for markets.
Monday was dubbed ‘Manic Monday’ in a few corners of the financial world. The S&P 500 opened sharply lower, down 4.5%, before a rumour spread, seemingly originating from an anonymous Twitter account, suggesting that President Trump was considering a 90-day delay on tariffs to allow for negotiations. Markets immediately surged, rallying nearly 9%. But the optimism didn’t last – the White House quickly denied the story, and the market gave up much of those gains, falling back 5%. And this all happened within the first hour of trading.
While it was a rollercoaster start to the week, it was also an early indication that any sign of relief on the tariff front, even just the possibility of a delay, would be enough to spark a sharp market rebound.
The fireworks continued on Tuesday, with the market opening up 4%, only to fall 7% by the afternoon, before clawing back to finish just slightly down.
Wednesday shifted the spotlight to the bond market. While equities have grabbed the headlines, bonds have been just as eventful – and arguably more consequential. The US 30-year yield saw its largest 5-day rise since 2008, and the second largest since 1987:
Source: Bloomberg. Past performance is not indicative of future results.
Long-dated US Treasury yields are continuing to rise, signaling a major sell-off in long-duration bonds.
Importantly, this doesn’t appear to be inflation-driven, as it can often be with rising bond yields – long-term breakeven inflation rates have actually fallen, as markets now price in lower long-term growth.
The selloff in long-duration may well be investors shunning these riskier, more interest-rate sensitive bonds in favour of safer assets. Long-term yields are also rising in the UK and Japan, signaling that it’s not just US investors who are worried about recession risks.
While UK long-term yields are rising, short-term yields have remained largely flat over the last week, supporting the idea that investors are moving towards safer assets. In contrast, US short-term yields have risen, as the competing forces of a move towards short-dated bonds comes up against rising yields as a result of the more US-centric inflationary pressures caused by the tariffs.
Even more worrying, some have suggested that this rise in yields could mark a broader loss of investor confidence in the world’s largest sovereign debt market. Talk of future default risk is gaining ground – something the White House has dismissed as “ridiculous.” But traders haven’t forgotten that Trump, in his business days, had a history of debt defaults.
This sharp rise in yields this week is reminiscent of what happened in the US bond market at the onset of COVID in 2020, and also what we saw in the UK during the 2022 mini-budget under Liz Truss.
Back then, unfunded tax cuts spooked the bond market, eroding confidence in the government and sparking a wave of bond selling. That triggered margin calls for many defined benefit pension schemes using leverage, forcing them to sell bonds at falling prices — which led to further margin calls and a vicious feedback loop. The Bank of England had to step in with emergency bond purchases to stabilise things, just as the Fed had to do in 2020.
Fast forward to Wednesday, and there were reports of a similar pattern occurring in the US. Tariff concerns triggered a bond sell-off, and there was much speculation that leveraged hedge fund strategies, notably the popular ‘basis trade’ (which uses borrowed money to exploit pricing gaps between Treasuries and Treasury futures) began to unravel.
Some combination of the growing fears of stagflation caused by the tariffs, the extreme market reaction, and the systemic risk emerging in the bond market, caused the Trump administration to shift gears on Wednesday. The White House announced a 90-day pause to the sweeping tariffs, and opened the door to negotiations. Tariffs on China, however, remained in place, with tensions between the two countries continuing to escalate.
The tariff delay announcement sparked a massive market rally late on Wednesday in the US and into Thursday morning in Europe, with the S&P posting a near 10% gain in a single day – its best since 2008. Remarkably, that came just three days after its worst single-day performance since 2020, when it fell 6% last Friday:
Source: Bloomberg. Past performance is not indicative of future results.
Markets were slightly quieter on Thursday and Friday in terms of headlines (at least at the time of writing), though US markets still sank on Thursday as trade tensions with China continued to escalate.
Stocks on discount
While investing through turbulent times such as this can be uncomfortable, for those who aren’t planning to access their portfolios for several years, these drops in the market can represent an opportunity rather than a setback.
So far this year, global equities — as measured by the MSCI World Index in GBP — are down around 10%. While that might feel discouraging in the moment, history suggests that returns following such corrections are often stronger than average:
Source: Bloomberg. MSCI World in GBP. Past performance is not indicative of future results.
While we can never extrapolate past performance with total confidence, history suggests that continuing to invest during drawdowns can be beneficial.
- The median 1-year return following a 10% market correction is +15%, well above the long-term average annual return of 9%.
- 3-year, 5-year, and 10-year annualised returns following such corrections have also historically been higher than average.
Focusing on 5-year returns in particular, the data shows that the median annualised return over the five years following a 10% decline is +11%. This is based on 20 historical instances of such drawdowns in global equity markets since 1971. The chart below illustrates the spread of those outcomes.
Source: Bloomberg. MSCI World in GBP. Past performance is not indicative of future results.
The key takeaway: it’s rare for investors to experience negative 5-year returns after a 10% drop. In fact:
- Only 3 out of 20 instances saw negative returns over the following five years — and all were linked to the dot-com bubble and its prolonged recovery.
- In 85% of drops (17 out of 20), markets were higher after five years, with median returns outperforming the long-term average.
Even in the shorter term, the outlook has often been encouraging. Historically, the market has been higher 75% of the time one year after a 10% drop, with a median return of +15%. Three-year returns have also tended to be positive in the vast majority of cases. Most importantly, there has never been an instance where global markets remained in negative territory ten years after a 10% decline:
Source: Bloomberg. MSCI World in GBP. Past performance is not indicative of future results.
For investors able to take a long-term view, staying invested, and continuing to pound-cost average into portfolios, has historically proven to be a sound strategy.
Staying invested
For those who feel uneasy about adding to their investments right now — that’s entirely understandable. Market volatility can be emotionally draining, and it’s natural to want to avoid further losses.
Probably the most common mistake people make when they experience market turbulence is to sell their investments. At first glance this makes sense – why keep your money in assets that are losing value?
This chart shows the impact of selling during volatile periods. It shows the performance of an investor who stayed invested during downturns and rode the dip, against an investor who sold after every 10% drop, only to reinvest once the market had recovered.
Source: Bloomberg, MSCI World in GBP since 1971, log scale. Assumes an investor sells after a 10% drop, earns zero returns, and reinvests when the market reaches a new high. Past performance is not indicative of future results.
The difference is striking. The second approach — selling and waiting for a full recovery — leads to significantly lower long-term returns.
You might have heard the phrase “time in the market beats timing the market”, and it’s not just a cliché, there’s plenty of evidence to support the idea. As you can see, missing out on recovery periods as a result of selling can have a significant impact on a portfolio’s value over time.
One of the main reasons is simple: you don’t know when the market has bottomed until well after the fact. There are no flashing lights or announcements to signal the turn. That uncertainty makes it incredibly difficult to time re-entry successfully.
This is where many investors struggle — because once you’ve sold, you then face a second, and often harder, decision: when to get back in. During volatile periods, markets don’t fall in isolation. They’re accompanied by dramatic headlines and convincing narratives that often suggest the worst is still to come. This makes it very difficult to feel confident re-entering the market.
And yet, some of the strongest market gains occur immediately after sharp declines — a phenomenon known as “volatility clustering”. We can even see evidence of that happening this week – the S&P fell 6% last Friday, its worst single day since 2020, but was quickly followed by a +9.5% day a few days later – its best day since 2008.
That’s why we continue to advocate a long-term investment approach: one that avoids knee-jerk decisions, stays aligned with a clear plan, and recognises short-term shocks for what they are — temporary.
Staying invested through the ups and downs isn’t always easy, but history shows it’s one of the most effective ways to build long-term wealth.
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