How the Tariff Shock Is Reshaping Markets

To say that the weeks following the Trump administration's announcement of massive tariffs have been eventful does not really do it justice.

The past few weeks have seen a frantic market reaction to the Trump administration’s announcement of massive tariffs, which are set to drastically reshape financial markets and the global economy.

With a brutally crashing and sometimes rebounding market, collapsing trade with China, nearly total confusion over future tariffs, and supply chain disruptions, the financial markets and the economy as a whole are still scrambling to figure out how it will play out.

“The CEOs of Walmart (WMT), Target (TGT), and Home Depot (HD), all of whom delivered a blunt message about interruptions in the supply chain and its effects on consumers.

Trump’s tariffs have placed significant pressure on the retail sector. The business leaders warned that store shelves across America could soon be empty.”

Source: CNN

In such periods, it is usually “safe assets” that benefit the most, as capital flees to safety until the storm clears. However, what constitutes a safe asset in the modern era has been an open question in recent years.

Historically, and to this day, this would have meant gold, as the only currency independent of any government. More recently, US government bonds have been considered by economists as the “risk-free” benchmark on which the entire global economic system is anchored.

Another strong contender today is Bitcoin (BTC). This is because Bitcoin replicates many of the features that historically made gold a safe haven in a digital form.

Bitcoin USD (BTC)

In this recent turmoil, it seems that Bitcoin performed this role well. But does that mean that investors should expect, from now on, for Bitcoin to be de-correlated from broader markets?

Post-Tariff Fallout: What Happened and What’s Next

On April 2nd, dubbed “Liberation Day” by President Trump, a massive wave of tariffs was announced and followed by more tariffs in the following days.

Overall, the tariffs were:

Source: USA Today

While likely far from over due to the broader and intensifying competition between the US and China, it seems the first round of tariff shock has now somewhat passed.

Investor Panic and Market Moves Explained

The intensity and rapid escalation in tariffs shocked market participants and triggered an immediate sell-off. It was followed by intense days as the main indexes sawed up and down, depending on whether it looked like a tariff deal with some of the US’s main trade partners was likely or not.

Many large investors were also considering derisking and reducing exposure during the turmoil.

“What you're looking at, broadly speaking, is a market that is frustrated, uncertain and confused about where we're going to be one day to the next. In that environment you have a tendency to see some investors choosing the safety of cash.”

John Canavan – Lead analyst at Oxford Economics

Bitcoin's Decoupling: Signal or Blip?

Initially, it appeared that Bitcoin would crash alongside other financial assets. But this trend did not last, and even quickly reversed. While Bitcoin is still not yet back to its all-time highs well above the symbolic $100,000 mark, it stands at $95,500 at the time of writing this article.

However, thanks to the broader market decline of the last weeks, Bitcoin is soon breaking through its highest point ever when compared to the S&P500, which is likely a more relevant comparison point for most investors.

Source: Daily HODL

How Gold, USD, and Bonds Reacted

Another major, and surprising, winner of the tariffs has been gold. Gold had previously been only slowly rising in price since its low point in 2016, with years-long periods of no growth. However, it is up 25% year-to-date, with unprecedented moves of more than $100/ounce in one day at times.

Source: Trading Economics

Meanwhile, the US dollar itself has been decreasing in value quickly against major currencies like the Euro.

Source: Google Finance

But maybe the most surprising result, one that was likely unexpected even at the White House, was a pronounced weakness in US bonds. For example, the 10-year US bonds saw their yields increase, in total contradiction to expectations, as declining stock prices are usually correlated to rising bond value (and decreasing bond yields).

Source: CNBC

Altogether, the market’s and other assets’ reactions are painting a pretty grim picture. The tariffs are perceived as very disruptive, but more importantly, the USA itself is not seen as a safe place to park money during a market crash or a potential recession.

Instead, a flight to safety is occurring, with traditional gold and digital gold (Bitcoin) gaining value, while the US dollar’s value declines. If these moves in the bond market persist, this could increase the cost of the US debt, putting a strain on the country’s finances.

Is Bitcoin Now A Risk Asset Or Safe Haven?

For a long time, a