(Bloomberg) -- Calm prevailed on equity markets Thursday, a welcome reprieve after four days of moves that topped 1 percent.
Don't get used to it.
Market swings have surged this year. The S&P 500 has moved at least 1 percent 26 times already, triple the 2017 total. The Nasdaq 100 capped its ninth straight day with a move that size, the longest stretch since the depth of the financial crisis. And then there's the intraday reversals: Stocks roared back from a 1.5 percent plunge at the open Wednesday to close higher, marking the sixth reversal of at least 1 percent since January -- equal to the total of the past two years.
The change has a lot to do with the political climate.
Investors have been whipsawed by Washington's changing policy priorities following President Donald Trump's legislative wins on traditional pro-business policies like tax cuts. The administration's now pushing protectionist proposals that are less eagerly supported by many corporate leaders, while the president ratchets up attacks on individual companies. The result is a market that's grown increasingly reactive to tweets.
“This is very much headline driven,” said Quincy Krosby, chief market strategist at Prudential Financial Inc. “You can see how -- absent something that the market can focus on squarely, such as earnings -- the market is vulnerable to headlines, both for moving higher and moving lower.”
Wednesday's turnaround had everything to do with trade talk. U.S. investors awoke to a 2 percent drop in S&P 500 futures after China issued a rapid response to American tariff proposals. By midmorning, officials from China and the Trump administration were leaving the door open to a negotiated solution that would avoid levies, which wouldn't take effect for months.
Stocks got a boost when National Economic Council Director Larry Kudlow suggested on Fox Business that Trump's bluster was part of a negotiating strategy to win better trade terms. He call the list of tariffs “a first step.”
The uncertainty emanating from Washington is a stark reversal for investors who'd grown used to months of market love from the president, particularly his $1.5 trillion tax overhaul and anti-regulatory stance. Trump's recent calls for tighter regulations on Amazon.com Inc. have sunk shares of the nation's fourth-largest company by market value.
Changes Coming
“What's happened certainly over the past two months is the markets have lost a little bit of faith in Trump,” said Scot Lance, managing director at San Mateo, California-based Titus Wealth Management. “The Trump trade has been deteriorating.”
Of course, the market's being tested by more than just the president's tweets. The Federal Reserve remains steadfast in its push to tighten monetary policy, and stumbles at individual companies from Facebook Inc. to General Electric Co. have lopped off billions in value.
“Investors are trying to come to terms with the understanding that the market is not going to go up in straight line forever,” said James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $5.1 billion. “There are changes coming, whether it's in monetary policy, trade policy or regulation, some of which have unknown element to it.”
--With assistance from Sophie Caronello
To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net, Sarah Ponczek in New York at sponczek2@bloomberg.net.
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Andrew Dunn
©2018 Bloomberg L.P.
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