Convulsive week in the markets

MAPFRE AM Multi-asset Strategies Team

The markets are reacting convulsively to the change in the economic policy of the USA, which remains the largest economic and military power on the planet.

• What dynamics are observed in the markets?
• How is our MAS range positioned (FondMapfre Elección)?
• What can we expect in the short/medium term?

What dynamics are observed in the markets?

• Markets have always tended to oscillate from euphoria to pessimism. For the past decade, or perhaps two, these oscillations have occurred more sharply. The changes brought about by the new Trump administration have raised many scenarios that would have been unthinkable just four months ago, with the clearest examples being the North Atlantic defense alliance and international trade.
• The announcement of tariffs far higher than expected by consensus—implying a massive tax increase of up to 2.5 percentage points of GDP and a direct confrontation with the rest of the world, including both enemies and allies and friends—has left investors, businesspeople, and likely the general public, bewildered.
• The consequence is that it is dramatically increasing the probability of an economic recession in the USA and elsewhere.

How is our MAS range positioned (FondMapfre Elección)?

• Since the last week of February, funds have been reducing their exposure to risk in equities. In fact, the charts below show that this movement began slightly before the peak in the stock markets.
• We must take into account that fixed income was affected when Germany announced its investment plan, reducing the weight in fixed income and thereby increasing the relative weight of Equities.
• All funds reached an underweight position in equities at the beginning of March.
• On the other hand, the duration has been gradually extended since the beginning of the year—first in the U.S., and, to a lesser extent, in Europe following the German announcement.

What can we expect in the short/medium term?

• In the very short term, the funds have returned to a neutral position with a somewhat aggressive move on the morning of Monday, April 7, taking advantage of signs of panic detected in the markets. At the same time, the duration in the American part of the portfolio was reduced. These two movements are very tactical.
• We are concerned about the deterioration of international relations, but we think there are several positive catalysts:
  • Possible negotiations to reduce tariffs
  • Possible rate cuts
  • Possible tax cuts (essentially in the US)
  • Strong drop in the price of energy that should support consumption
  • Unstoppable technological advances (AI)