The fall in the stock market is on the same footing with other crises.
Yes, it can get worse.
Global shares are in free fall and nothing seems to be able to arrest the decline. The damage is only financially financially, but with the S&P 500 out of 14% for three days based on where the Futures on Sunday evening act, it can spread to other parts of the market. This is the moment when things start to break.
The market reaction at rates may not be ignored. Larry McDonald of the Bear Trap Report compared it at the weekend in 2008 when the American government let Lehman Brothers fail, which had been converted into a financial crisis. “In September 2008 they chose to shoot Lehman in the head and they thought the consequences would be manageable,” McDonald writes. “Trump -Team -Same -deal, exponential uncertainty, 1000 well -known strangers. Markets cannot process that.”
However, Trump and administrative officials do not seem to be so concerned, despite accelerated sales in shares. Treasury secretary Scott Kenneth Homer Bessent On NBC, the Pre-Tariff number of March called it proof that there will be no recession and argued that most Americans do not feel the pain of the decades that much. “Most Americans don’t have everything on the market,” he said. “Most Americans in a 401 (K) have what a 60/40 account is called … 60/40 accounts have fallen by 5% or 6% in the year. People have a long -term vision.”
In response to a request for commenting on market sales, spokesperson for the White House, Kush Desai replied: “The Trump government is tailored to tackling the national emergency situation that President Trump has rightly identified, it has been stated by our country that has signed the American breach of the American breach of the American branch of the American industry, the dollar that the Dollar, the Dollar Dollar. From the administration of rates, deregulation, tax cuts and the unleashed of American energy, the American greatness will restore Main Street to Wall Street. “
Trump spoke with reporters on Air Force on a Sunday evening. He denied that he deliberately tried to crash the market; A video that the president again posted on his own network on Friday contained that message. “No, that’s not the case,” he said.
Markets are interconnected. And the lower the market drops and the longer the administration without acknowledging that there is a problem, the greater the risks of a major break will be. Many financial players still use “value in danger” or VAR, as a risk management tool. To simplify it when the volatility is low, VAR funds charge for risky assets. When volatility rises, they have to derisking, so that everyone sells immediately, making the falls worse. They also have to sell their winners. “In this phase there is a considerable risk of a VAR event, when even the winning transactions are injured,” write the strategists on MI2. “That is why, after their spectacular run -up in recent months, European shares were beaten last week and Euusend withdrew from the highlights.”
There is also the potential for the weakness to spread to the credit markets where it has potential to cause much more damage. The risk is exacerbated by the fact that nowadays many loans are not made by banks, which are strictly under the supervision of supervisors, but in private markets, where about $ 1.5 trillion loans were at the beginning of 2024, according to Morgan Stanley. The decrease in the stock market in combination with the economic damage that occurs due to rates can cause major problems with the financial system. “Things come from the woodwork,” says BCA research strategist Peter Berzin. “We don’t know what’s going on or why borrowers went to private credit instead of a bank.”
Traders will keep a close eye on signs of a hiccup in the treasury markets. Remember that treasuries are the lifeline of the global financial system, used as collateral on both long and short -term loans. When the financial system comes under stress, companies hoard cash and “repo markets” can freeze as in 2011 during the first debt crisis. Even worse is the possibility that the US will try to force short -term holders to roll their bills in long -term bonds, an idea that some has been brought around by some. “That is what bankrupt companies do,” says Berezin. “If you start questioning the holiness of the Treasury markets, you may cause a crisis that is worse than what we experienced in 2008.”
None of these scenarios are someone’s basicase. But not much expected that Trump would impose the rates as far as or in the way he did, too.
Remember: it doesn’t matter how much the stock market has fallen, it can always get worse.
Matt Peterson has contributed to this article.
Write to Ben Levisohn on Ben.levisohn@barrons.com
