Perryman: Five-Alarm Fire!!

The day after the election last November, the stock market enjoyed a really strong day, while the bond market did not. That was not at all surprising. The election brought the likelihood of lower taxes and less regulation, both of which make equities more attractive. It also brought fears of higher inflation, which tend to drive interest rates up and make bonds less desirable. Things have changed A LOT since then with all of the uncertainty but therein lies a critical lesson.

Historically, it has been quite common — and quite natural — for stocks and bonds to move in different directions. When large institutional investors feel good about things, they tend to buy stocks with the expectation of future earnings and profits. When they are more concerned, they move vast sums to safety, which for decades has meant US Treasury Bonds. The obligations of the US government have long been the “gold standard” for financial security and the world’s undisputed definition of a politically risk-free asset. Through close elections, major policy shifts, wars, terrorist attacks, pandemics, excessive debt, and mortgage meltdowns, the strength of US economic and political institutions has at times been challenged but inevitably reigned supreme. That is, at least, until the morning of Wednesday, April 9, 2025.

As the tariff fiasco unfolded early in that week and it became apparent that even greater fiscal deficits were likely on the horizon, the equity markets saw dramatic drops and investors shifted into bonds. The results were painful and quite unnecessary, but at least predictable.

Then, on that fateful Wednesday morning, as yet more tariff chaos was unveiled, the unthinkable happened. Stock prices dropped (as expected), but money DID NOT flow into bonds. The significance of this change cannot be overemphasized. The global markets were essentially saying that they no longer viewed the United States as the ultimate safe haven, with such implications as (1) the capacity of the US to fund its ever-increasing debt being called into question, (2) US leadership in international economic affairs becoming in jeopardy, and (3) without any other realistic candidate to underpin world economic stability, the capacity for sustained growth suddenly called into question.

Fortunately, alarm bells went off, many of the tariffs were rapidly deferred, the stock market turned sharply around, and the immediate crisis was averted. Nonetheless, we were put on notice that markets no longer automatically turn to US securities in times of crisis, which is a fundamental shift. This change is not something that the Federal Reserve can fix by tinkering with short-term interest rates. Less chaos, increased positive international leadership and engagement, and more fiscal discipline are paramount to assure ongoing US prosperity and, indeed, global economic viability. Stay safe!

Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: shelia@perrymangroup.com.

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