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Wall Street Shows Resilience Amid Trump’s Fed Criticism and Tariff Warnings
Despite recent criticism of the Federal Reserve and tariff threats by former President Donald Trump, Wall Street continues to demonstrate notable stability. Analysts are observing that markets remain resistant to external noise, maintaining a steady performance.
On October 18, Bloomberg reported, “The markets remain calm, with asset class movements increasingly displaying independent trends.” This resilience comes even as geopolitical and economic uncertainties dominate the headlines.
Cross-Asset Correlation Falls to Decade Norms
An in-depth analysis by Barclays reveals that cross-asset correlation—measuring the synchronized performance of stocks, bonds, credit, and commodities—has decreased to 32%. This figure aligns closely with the 10-year average and represents a sharp drop from March 2023's peak of 55%, when inflation worries were at their height.
This decrease in correlation means markets are moving away from being influenced by broad narratives like Trump’s remarks, instead focusing on specific economic and market factors. Previously, concerns over inflation and interest rate policies drove asset prices in unison. Now, high-yield bonds are behaving independently of short-term Treasuries, and gold's connection to bond prices and the credit market is weakening. This "de-coupling" across asset classes illustrates a major shift in market dynamics.
Bitcoin Charts Its Own Course
Bitcoin’s recent movements further emphasize the rise in independent asset behavior. Once labeled "digital gold," Bitcoin (BTC) is carving its own path, increasingly detached from trends in major asset classes.
Barclays strategist Emmanuel Cau highlighted this trend, stating, “Despite macroeconomic uncertainties, robust growth and lower rate volatility are shifting market focus from policies to individual corporate earnings and fundamentals.” This shift has been visible in the broader market as well.
The S&P 500 index has maintained a modest but steady upward trend, avoiding major volatility with 17 consecutive sessions without a 1% move in either direction. Meanwhile, Bitcoin has stayed near its all-time highs, contrasting with Treasury ETFs like TLT, which posted a 0.6% decline. These movements further illustrate the divergence among assets sensitive to interest rate changes.
Market Calm May Be Short-Lived
While markets are currently stable, experts caution that this phase may not last. James Saint Aubin of Ocean Park Asset Management warned, “Inflation remains the ‘common enemy’ across asset classes.” He added that renewed fears of stagflation—a combination of economic stagnation and rising inflation—could trigger a resurgence in correlations between stocks and bonds.
Lessons for Investors
As cross-asset correlations decline, Barclays data suggests a return to more normalized market behavior. However, significant risks linger. Structural inflationary pressures and ongoing policy uncertainties continue to be major concerns for investors.
The recent de-coupling of assets presents an opportunity for diversification, yet caution remains essential. For investors, staying alert to economic data and potential policy changes will be paramount in navigating these evolving market dynamics.
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