Tariffs induced ‘doom loop’

A nasty ‘doom loop’ is in danger of developing on markets as consumer and business confidence collapses, according to AXA Investment Managers chief investment officer, Chris Iggo.

In an analysis of the current situation in the wake of US President, Donald Trump’s ‘Liberation Day’ tariff announcements, Iggo said trillions of dollars of household wealth have been lost because of the subsequent stock market rout.

“A nasty doom loop is in danger of developing as consumer and business confidence collapses,” he wrote. “Shouting bad economic theory at every opportune press event is not going to stop it.”

“Investors need to protect their wealth – more defensive, safe-haven asset classes will likely continue to perform better than equities. Credit markets have been more stable than equities, helped by lower interest rates. But as we approach the first quarter (Q1) earnings reporting season, the risk is that corporate America’s message about its financial outlook is not going to be good,” Iggo said.

“Stocks have been expensive and credit spreads have been tight. The adjustment process against a collapse in economic sentiment has further to go.”

Iggo noted that the more forecasters had been explicitly predicting a US recession and said that if that proved to be the case “we should expect corporate profit margins to plummet, net income to fall and price-to-earnings multiples in the equity market shrink”.

“The Federal Reserve has historically cut interest rates aggressively in recessionary periods. This is probably the road map ahead and more portfolio reallocations are likely to be necessary as a result,” he wrote.