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Three decades ago, I became fascinated by the concept of “social silence” – or the idea put forward by intellectuals such as Pierre Bourdieu as we do not Talking is more important than what we do.
Currently, this silence is largely suspended on the markets. This week, there was a terrifying noise cacophony around geopolitical events – embodied by the warning of President Donald Trump according to which America “may or not” will join Israel’s attacks against Iran.
And dark economic data continue to go out. Last week, the World Bank reduced its prediction for global growth (to 2.3%) and America (at 1.4%) – warning that if the 90 -day break from the so -called Trump’s “Liberation Day” expires on July 31, we will see “the world trade seized in the second half of this year”. This week, the Federal Reserve has also greatly lowered its American growth projection and increased its inflation forecasts. This is equivalent to Stagflation-Lite.
However, the American stock markets have been discreet in recent weeks, increasing by more than 20% since early April – recovering from the moment when they passed out after the announcement of the “Liberation Day”. Indeed, they are almost record peaks. And while bond yields at 10 years old at 4.4%are almost a percentage point higher than their level of last fall, they have recently stabilized – even if the American budget projections deteriorate.
Thus, the great “silence” of the market is therefore not increasing risk expressions, but the lack of investors panic apparatus so far.
What about this reluctance behind? An explanation could reside in what my colleague Robert Armstrong called the “Taco” effect – the presumption that Trump always in his threats. Another is a second problem “T”: the weather is late.
The Danish Central Bank, for example, has recently studied how stock markets have reacted to commercial shocks since 1990. Research has concluded that “the uncertainty of commercial policy [has] Significant negative effects on economic activity. . . It takes up to a year for the effects to materialize ”.
Likewise, the Bank for International Settlements warned last week that we faced “a substantial negative contribution of uncertainty both to investment and production growth”. However, it calculates that the greatest impact on investment will occur in 2026 – note, not this year – up to a capital expenditure rate of 2% lower in the United States and Japan next year.
In addition, a multitude of research appeared that show to what extent Trump’s threats to deport millions of undocumented workers could harm the American economy. While the raids of immigration and customs application are making headlines at the moment, the real economic impact will not be seen for a few years. To cite an example: the Peterson Institute estimates that if 1.3 million migrants were expelled, this would reduce the GDP of “just” 0.2% this year – but 1.2% in 2028. Hence the time problem.
In addition to that, there is a third possible explanation for the lack of panic at the moment: disaster fatigue. More specifically, investors are faced with such an overload of disorienting shock that they have (at best) to become well suited to handling pain, without panic, or (at worst), are so amazed that they cannot treat it.
Call this, if you wish, the problem “Death by Mille Cuts”. Currently, there is no unique shock which is clearly large enough to trigger a market accident. Yes, if oil exceeds $ 100 per barrel in the middle of an additional climbing of the Middle East war and the closure of the Hormuz Strait, it would certainly hurt. And that scenario cannot be discounted – Least of all, According to Philip Verleger, an Energy Economist, Becuse when Israel’s Initial Attack on Iran Began “Oil Industry Firms Were Caught with low inventories” and there we are “very large call positions” (ie derivative bets) that unwind,
But so far, oil prices have only been costing about $ 75 a barrel. To which investors are confronted today is an imminent tail risk rather than an imminent and tangible disaster. Or to use another analogy: the markets are not struggling with a single shock of “heart attack” (as during the COVID-19 pandemic) but propagant economic cancer, in the form of a metastasing uncertainty around the future injury. It’s not 2020.
Hence the brief explosions of market volatility – as measured by the VIX index – which then go out. This is also the reason why the message of different asset classes is not consistent. “American actions behave like Trump, to pursue short -term victories,” said Jack Abblin, director of investments at Cresst. “Long links act as [Elon] Musk, fixed on longer -term and uncomfortable truths. »»
And here we come back to the problem of social silence. While investors are trying to analyze the risks of confusing tail, most are in the grip of deep doubts – and to a certain extent, even professionals feel nervous if they are not embarrassed. This means that he might not take much from the stock markets to crack; But it also means that no one knows when (or if) it can happen. Sometimes it is indeed silence that screams the strongest of all.
gillian.tett@ft.com
