Markets Weekly podcast

Julien Lafargue (JL): Welcome to a new edition of Barclays Markets Weekly podcast. My name is Julien Lafargue, Chief Market Strategist here at Barclays Private Bank.  

What a week. It was indeed a rollercoaster week but, in the end, US equities rebounded from the previous week’s significant downturn. The market did exhibit extreme volatility. The VIX, the fear index, peaked above 50 mid last week. And the S&P 500 came close to bear market territory on Tuesday, but then managed to avoid closing there. Unlike the Nasdaq, though, which hit that point last week.  

But then, midweek, everything changed and President Trump announced a 90-day pause on reciprocal tariffs for countries not retaliating and open to negotiation, and, of course, a dramatic turnaround ensued. 

In the end, the S&P 500 was up almost 6% last week. It certainly doesn’t feel that way. So, today, I’m very happy to be joined by Alex Joshi, Head of Behavioural Finance here at Barclays Private Bank, because I think we all need some time to digest, reflect and move forward from what was a very, very tumultuous week. So, thanks for being with us, Alex. 

Alex Joshi (AJ): My pleasure. Good to be here. 

JL: Right. Before you help us make sense of all that and all the emotions that we’ve been through last week, I’ve got a couple of things I wanted to point out.  

First, the moves in equity markets were crazy, but I think the main area of focus was clearly the bond market. We witnessed significant weakness with a steepening yield curve, both the 10-year and the 30-year yield in the US, but really across the globe, rose over 40 basis points and, at the same time, the US dollar continued its downward slide, making it its worst week since late 2022.  

And this is very important, because we are seeing something that we used to seeing more in emerging markets, which is yields going up as well as the domestic currency, in this case the US dollar, coming down. Typically, when you have higher yield, that should attract capital and, therefore, the currency should go up but we’re seeing the opposite here.  

So, what seems to be happening is something that we have discussed before in the podcast and in a client call we had last week, and that is the fact that all this uncertainty around tariffs and the fears around a possible recession in the US, are creating an exodus from US assets. People are selling US Treasuries and, as a result, they’re also selling US dollars. And the reality is that if you think about what’s easiest to sell in the current context, if you’re a portfolio allocator or a global asset allocator, it’s probably the US dollar.  

You probably don’t want to sell equities, because you’ve seen this huge rally that happened last week when we suddenly had good news on the tariff front, so you don’t want to miss that. You probably want to keep the fixed income part of the portfolio, because it can still serve as a hedge, but if you have US dollar liquidity that’s probably the first thing you’re going to sell. So, very important to monitor the situation when it comes to the dollar and bond yields. 

Now, the good thing is clearly that we saw where President Trump’s pain point was, and that is more on the fixed income side, on the yield side, because one of his objectives is to bring yields down. And he was very proud about that 10 days ago when yields were coming down, and, of course, as yields shot up he had to react.  

Anyway, we’ll discuss a bit more about what happened last week because there was so much going on, but, Alex, we can start by just reflecting a bit. And I’m sure you’ve been talking to a lot of clients last week, and I’m just curious to hear what were the key messages in your capacity of being a behavioural finance specialist, someone who understands better than anybody else our emotions as investors. What were you saying to clients? 

AJ: Morning, Julien. Thanks for having me back. So, I think the very simple message that I’ve been saying, if I was to summarise across all the conversations that I’ve had, is that it is completely understandable, as an investor, to be unsettled presently. But we need to be very wary of the impact of bear market psychology, because these markets often magnify behavioural biases. Risks feel bigger, worst-case scenarios dominate attention, but their salience can distort the probability.  

And so that’s why investors are at risk of taking actions in an environment that might be short-lived, as it’s still that there’s, in many cases, a tension between short-term fear and long-term goals. And so, you know, I recognise that it’s easier said than done, especially if you run a business that’s been impacted directly. I think many investors feel a responsibility to take some action right now, but being measured I think is no bad thing in the face of everything that we’re seeing right now. 

JL: I understand that we need to be measured, but, in all honesty, it was very difficult last week not to react to any headline coming our way and there were quite a few. In fact, over the weekend we got more noise coming from Washington in the form of the decision by the US administration to roll back, or at least pause, any tariff on electronic- and computer-related goods, when it comes to Chinese tariffs.  

But then again, we got another conflicting message saying that, well, this exemption will only be temporary and we are supposed to see within a month or two higher tariffs on this industry as well. So, with the market moving so quickly, with so many headlines coming our way, how do you think about being nimble in this environment? You know, last week we saw the Nasdaq rally 12% in a single day, so how do you approach that? 

AJ: Yeah, a very good question. It’s a very common one, you know, should we be taking on these opportunities because they’re not going to last forever etc. You know, I do agree. We do have to be nimble as investors, but it’s important to distinguish between moving on a tactical opportunity, that you are prepared for to some degree, versus an emotional sort of knee-jerk reaction based on, say, the worsening sentiment or big price moves.  

So, a big downward move could be an opportunity to top up, that investors have been waiting for, and someone’s got dry powder that’s been waiting for a better entry point. And that’s very different from selling because of a fear of further losses. That’s, you know, loss aversion, or buying actually after one of these big upward moves because of the fear of missing out.  

And I think this goes back to something that, you know, both of us have said many times on this podcast, about the importance of having a ‘core-satellite’ approach to investing, where you’ve got a core that is built for the long term, which to some degree is built on an understanding that some of these things, you know, volatility, drawdowns, do happen with some regularity, and to some degree you try and withstand, or mitigate, the impact of that.  

But then you have tactical opportunities on the side, where you can use tactical moves to mitigate risks or to capitalise on opportunities without playing with the entire portfolio. And I think the key point here is that, yes, you want to be responding and you want to be paying attention to what is going on, and you want to be acting responsibly with a portfolio, but there’s different types of trades and moves that you can make and it’s important for investors to be clear on the moves that they’re making, whether these are well thought out moves that have a potential long-term benefit, versus something which might be short term, more emotional in response to some of these headlines. 

JL: And I think this is a very important point. I would say that it all goes back to the plan, the original plan. Why is it that we’re investing? What’s the goal of that investment? What’s the purpose of that investment? And that should be the North Star. We shouldn’t try and change plan midway through, simply because there is one headline. I mean, it might be justified, but this is not the type of scenario where it’s justified, because five minutes after that you might have another headline that basically negates the previous one, you cannot be changing your portfolio. It’s not a switch, right? You don’t go on and off, on and off. It’s just about at the margin dialling it up or dialling it down in terms of risk, in terms of exposure, depending on what’s happening with markets and also what’s the ultimate plan.  

And, the other thing I would say around those lines, is the fact that we have to recognise that sentiment can change very quickly. Narratives can change very quickly. The world doesn’t change that quickly, ie it might feel today that US ‘exceptionalism’ is over. It might feel that the dollar is doomed simply because people are starting to sell their US dollars, as we just discussed. This is not something that is happening overnight.  

Let’s not forget that this administration is in place for now. We’ll see how long they stay in place, you know, maybe four years maximum, at least as a unit, as an administration. We’ll see if President Trump decides to try and run for a third term. But my point is that the world hasn’t changed that much, despite what headlines suggest and what sentiment tells us. But talking about sentiment, how do you read the sentiment these days? Do you feel people are really afraid or panicking? Are they being composed? How would you read the current sentiment in markets? 

AJ: Yeah, it’s a very good question because a week ago we’d have said sentiment is extremely bearish and then, later in the week, we saw those dramatic moves upwards, and so things are bouncing around a lot. And it’s funny, you know, we put a note out a few hours before the 90-day pause was announced, and I remember that we said that sentiment is extremely bearish and positive good news could have a significant impact. And, that same day we saw a 9.5% relief rally in the S&P. And I think we need to expect continued volatility in markets but also in narratives, as you alluded to. 

You know, the reality is that the US has taken its economy and those of other countries on an uncomfortable journey, to what is an unknown and uncertain destination. And, with that in mind, it’s going to be very, very difficult to call the bottom in an environment like this, where so much stands on actions and even words and tweets of one single individual. You know, it’s simply impossible to do that, however much game theory you may have studied. 

So, I think it’s important to bear in mind that timing the market is difficult at any point in an investing journey, but especially so now. And it’s potentially very risky because of the fact that so much can move in the narrative and the impact that that can have on sentiment, which means that we potentially could see continued big moves in both directions. 

And so I think, for investors, that are thinking about the opportunities that this brings about, you know, if they’d feel that the sentiment is too negative or going in the other way; is that potentially identifying companies that are capable of providing outsized gains across the business cycle and adapting to this new world that we potentially entering into, is potentially likely to add more value over the long term, than trying to time the market to perfection. 

JL: Yeah, it wouldn’t be a podcast about behavioural finance if we were not mentioning that time in the market is more important than timing the market. Look, just to conclude, any advice you have for investors in the current environment? Anything that you’ve been telling people who are looking after their wealth to do given the current circumstances. 

AJ: Yeah, you know, the single most important question right now is simply: how do you feel? Investing can be an emotional rollercoaster at times like this and it’s important to appreciate that and respect it for what it is. You know, investing is an important way to protect and grow wealth, to provide liquidity, fund lifestyle, to leave a legacy, and investors have to bear risk to earn these returns and we have to recognise that, you know, they will have to go through volatile periods. 

But sleeping well at night is just as important. So, I think it’s important that investors are having discussions with advisers, you know, being open about how their feeling. You alluded to this. You know, you mentioned that it shouldn’t be an on/off switch. And at times, like this, investing can seem a bit like a sort of a binary choice of I stay in the market or I exit the market based on how I’m feeling.  

But the reality is there is a lot that investors can do, in terms of, you know, tactical opportunities, hedging, adjusting phasing plans etc. So, I guess that’s why it’s valuable to have, you know, an advisor, a team where you can, to some degree, discuss some of this. You can delegate some of the watching of the news and portfolio positioning, to some degree, to share the responsibility and the anxiety that can be associated with investing, because the reality is that no-one truly knows what comes next and forecasts are going to continue to shift. But what doesn’t change is the value of clear thinking, patience and perspective. And I think the key thing here is for investors to retain perspective in the midst of what we’re seeing. 

JL: Excellent. And talking about sleeping at night, I didn’t sleep much last night because I was watching Rory McIlroy at the Masters. And if you want an example of resilience in the face of adversity, I think you need to watch that round of golf. It was truly incredible how he remained fixated on his plan, which was to win. Things didn’t go his way at the beginning and for some time I thought that it was over, but he was truly focused on the end goal and he pulled it off in the end, and I think that’s a good lesson even for investors.  

Great to have you, Alex. Thanks for all your wise words over the last week. Hopefully you’re going to get some rest, we’re all going to get some rest in the weeks ahead, but we truly appreciate your insight and support. Thanks again. 

Now, one thing that I haven’t mentioned so far, because it basically didn’t really matter last week, was that we did get some economic data in the form of inflation, both at the consumer and the producer level, in the US. And both prints were actually much cooler than expected, which, on its own, would be great news for the Fed, for markets, but clearly the focus was elsewhere. And, equally, I would say maybe it was a good thing that the market wasn’t so focused on data, as the consumer sentiment data we got from the US hit its lowest level since 2022, but it wasn’t really a key contributor to market sentiment, which was a good thing.  

In terms of what to watch for this week, we will get some economic data from China, in the form of the first-quarter GDP figure, as well as the retail sales and industrial production numbers for March. For GDP, the consensus is looking at around 5.2% versus 5.4%, so a slight deceleration. Probably some upside risk to that simply because we would expect that companies will have pre-ordered as much as they could before tariffs came into effect. So, maybe a stronger Q1 and potentially a weaker Q2 for China. 

We’re also going to hear from Fed chair Jerome Powell, who will deliver remarks to the Economic Club of Chicago on Wednesday. Here, he will probably just reiterate most of the sentiment that he echoed on his speech earlier in the month. He might sound a touch less worried about tariffs, given that we got that 90-day pause.  

And finally, of course, we will get an ECB meeting, where the market expects a 25 basis point cut. That will be the sixth rate cut for this cycle, and that would bring the deposit rate to 2.25%. 

Finally, of course, we will be paying close attention to earnings. A bit more coming our way this week. Among the major ones to look for: J&J, UnitedHealth and Netflix in the US. Closer to home, in Europe, we will be watching for LVMH, ASML, Hermes, as well as TSMC. 

We will be on a break next week but we will be back in two weeks’ time and we will have a lot to debrief. In the meantime, well, first, let me wish you restful holidays if you plan to take some time off. But of course, as always, we will also wish you all the best in the trading week ahead.