27 February to 5 March: Less is More

Last week we suggested recent low realised volatility across markets was the result of a standoff between strong economic data and political uncertainty. Investors’ response to Donald Trump’s surprisingly conventional presidential address to Congress on Tuesday, which lacked any real detail but importantly scaled back his usual hyperbole and combative tone, suggests this may be the case.

In particular, Wednesday saw the S&P 500 log its first move of more than 1% for 56 days (+1.37%).² It is therefore our interpretation that, rather than betting on Trump as a source of near-term stimulus, the market is simply keen that he does not “upset the apple cart”.

Elsewhere, incoming economic data and hawkish Fed-speak prompted a large sell-off in bonds, with a rate hike in the US later this month (15th March) now expected.

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