Trump Administration Could Bring an Economic ‘Detox.’ What It Means for Stocks.
Investors may have nothing to fear but fear itself. But sometimes fear is more than enough.
4 min
As another week begins with more selling–all three major indexes are falling, with the Nasdaq Composite hit hardest–fear is undoubtedly running high in the market. The Cboe Volatility Index, Wall Street’s fear gauge, jumped 15% to 27 on Monday morning. That would be its highest close since Dec. 18, when it was at 27.62.
Uncertainty about government policy and the health of the economy is overshadowing positive data.
Tariffs are one part of the problem. Not only are they disruptive to global trade and lead to higher prices, but President Donald Trump has walked back their implementation and doubled down enough to give the market whiplash. And then there are worries about huge cuts to federal spending, including mass firings and slashing outlays for programs, with a budget fight that could lead to a government shutdown at the end of the week.
Investors have little incentive to keep the faith, especially because signs of economic weakness are starting to emerge.
“Prior to tariff uncertainty, Momentum factors were leading, and risk factor returns were stable,” notes 22V Research’s Dennis DeBusschere. “ Payrolls and PMI data indicate weaker growth at the same time tariffs are adding to uncertainty about the path of economic data and earnings.” The result is that stocks are swinging wildly, riskier names are out of favor, and defensive shares are the flavor of the month.
According to Sevens Report’s Tom Essaye, “until there’s some movement towards stable policy, the best we can hope for is a churn sideways between around 5,700 and 6,000 in the S&P 500.” The index broke below 5650 in morning trading Monday.
The problem is that the greater the losses, the more the market could be closing in on a “liquidation avalanche,” as Dohmen Capital Research’s Bert Dohmen puts it. The concern is that forced selling, such as to raise cash for margin calls on shares bought with borrowed money, or by money managers desperate to limit losses, creates a downward spiral.
Wall Street famously abhors unpredictability, but even more worrisome may be rhetoric from Washington, D.C., that indicates the Trump administration is fine with causing what it believes will be a short-lived downturn as it pursues long-term goals it considers more important.
Asked whether a recession on the way, the president declined to rule out the possibility. “I hate to predict things like that,” Trump told Fox News’ Sunday Morning Futures. “There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America.”
Treasury Secretary Scott Bessent, a former hedge fund manager, predicted “a natural adjustment as we move away from public spending to private spending, in an interview with CNBC. “The market and the economy have just become hooked, and we’ve become addicted to this government spending, and there’s going to be a detox period. There’s going to be a detox.”
As T.S. Lombard’s Dario Perkins notes, Elon Musk and others in Trump’s orbit have pointed to Argentina as a successful example of this strategy. President Javier Milei imposed strict austerity measures to combat inflation, leading to a brief recession in 2024.
Of course, “copying the policies of a country that had massive endemic corruption and was on the brink of hyperinflation is, er, problematic,” Perkins writes. “Yes, inflation is a bit high, but not so high that Musk and co should deliberately engineer a recession. Perhaps the new U.S. administration has forgotten what a ‘real’ recession is like.”
The 2008-2009 financial crisis was nearly two decades ago, and the U.S. only rebounded from the Covid-19 downturn so quickly and strongly because of huge government spending. That means it is “odd to see US policymakers talk as if they want to inflict damage on the economy, or at least do things that risk causing damage,” he notes.
The White House didn’t immediately respond to a request for comment.
Damage could snowball quickly. If big government layoffs continue at a time when hiring is already weak, it could lead to a further loss of confidence and even higher unemployment. And as history shows, recessions aren’t always quick or without damage.
“The US is not Argentina, and it is not facing an imminent debt crisis,” Perkins writes. “In any case, does anyone seriously think a recession in 2025 would lower America’s debt trajectory? Every recession I know has had the exact opposite effect.”
The good news is that we aren’t there yet. Earnings have held up well, and while the mention of tariffs in fourth-quarter conference calls was up 40% from their prior peak in 2018, mentions of a recession fell to their lowest point since the first quarter of 2018, as DataTrek Research’s Nicolas Colas notes.
“The dichotomy between record high ‘tariff’ and near-record low ‘recession’ mentions on investor calls neatly reflects the mood of corporate America,” he writes. “The C-suite is struggling to come to grips with tariff policy but remains fairly optimistic on the US economy. So far, anyway…Any change to the latter view would be unwelcomed.”
For his part, TS Lombard’s Perkins isn’t predicting a recession. Sevens Reports’ Essaye notes that concern about tariffs so far has been worse than their effects. While it makes sense to brace for volatility, “that negative scenario is not a foregone conclusion and actual facts on the economy and earnings [are] hanging on.” he says.
22V Research’s DeBusschere highlights that in aggregate, macroeconomic data still point to a very high probability that the U.S. economy is still expanding. “Over the past few weeks though, market internals have weakened to a level more consistent with economic slowdowns/heightened recession risk,” he says. “Markets are discounting a sharp slowdown that is not evident TODAY in actual data.”
The problem is that as long as chaotic moves in Washington, D.C., continue, that won’t matter for stocks.
“Although the U.S. will still likely avoid a recession this year, investor sentiment does appear to be headed toward another recession scare,” writes Paulsen Perspectives’ Jim Paulsen. “An actual recession would probably result in a bear market, but even an ongoing or worsening ‘fear’ of recession will likely magnify the current stock market correction.”
When the market gets clarity about what comes next, prices can recover. But until then, it is hard to see how stocks can rise consistently. Just the fear of a recession is enough to weigh on markets.
Write to Teresa Rivas at teresa.rivas@barrons.com
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The ASX 200 rose 1.28 per cent in the week ending 30 October as miners rallied, consumer stocks fell and rate-rise expectations climbed
6 min
The Australian sharemarket rose during four of five sessions in the week ending 30 October, but the headline gain concealed a sharp divide between recovering miners, rate-sensitive property stocks and retailers hit by inflation and weaker trading updates.
The Australian sharemarket finished October with a positive week, although the route higher was anything but uniform.
The S&P/ASX 200 closed Friday 30 October at 8,908.1, gaining 112.9 points, or 1.28 per cent, from the previous Friday’s close of 8,795.2.
The All Ordinaries advanced 1.34 per cent to 9,025, while the more concentrated S&P/ASX 20 gained 1.11 per cent.
The benchmark rose during four of the week’s five sessions. It added 0.17 per cent on Monday and 0.46 per cent on Tuesday, before slipping 0.03 per cent on Wednesday. It recovered 0.50 per cent on Thursday and gained another 0.18 per cent on Friday.
The index briefly reached 8,933.3 but again failed to establish itself above the psychologically important 9,000-point mark.
The week’s central tension was between a resources recovery and a less forgiving domestic interest-rate outlook.
Materials gained 4.06 per cent, reclaiming part of the previous week’s heavy fall. Australian real estate investment trusts rose 3.77 per cent, financials gained 1.05 per cent and energy advanced 1.39 per cent.
At the other end of the market, consumer staples fell 5.13 per cent and consumer discretionary shares lost 2.35 per cent. Utilities declined 0.73 per cent and communication services eased 0.68 per cent.
Inflation changes the conversation
Australia’s September inflation data was the week’s pivotal domestic release.
Annual inflation of 4.3 per cent pushed market pricing towards another possible Reserve Bank increase and disrupted Wednesday’s early sharemarket rally.
By Thursday’s close, one widely followed market measure placed the probability of an increase in the cash rate to 4.85 per cent at approximately 80 per cent.
That pricing does not make an increase certain. It does, however, change the framework through which investors assess Australian businesses.
Companies dependent on discretionary household spending face renewed pressure on sales and margins. Property trusts, banks, developers and highly leveraged companies must be considered against the prospect of higher funding costs.
Banks present a more complicated equation. Higher rates can support margins, but they may also slow credit growth and increase arrears.
Miners recover
BHP gained 4.56 per cent across the week to close at $57.56, making a substantial contribution to the benchmark’s rise.
The recovery followed an 8.3 per cent fall during the previous week and helped lift the broader materials sector.
Northern Star Resources added 4.59 per cent, while Goodman Group advanced 6.85 per cent to become the strongest performer in the ASX 20.
The commodities picture was mixed. Gold fell approximately 3.12 per cent on the cited weekly measure, while Brent crude added around 0.68 per cent.
The Australian dollar was little changed at approximately US70.35 cents at the reference point.
Supermarkets and consumer shares retreat
The consumer-staples story was markedly weaker.
Coles fell 11.77 per cent after its first-quarter update, making it one of the largest significant-company declines of the week.
Woolworths lost 3.66 per cent and Wesfarmers fell 4.48 per cent to $76.69 as investors processed company trading commentary against the prospect of another squeeze on household demand.
The moves illustrate how quickly expectations can change when an apparently defensive company disappoints.
Supermarkets still benefit from the recurring need for groceries, but customers can trade down, shift between chains and reduce spending on higher-margin discretionary lines.
Wesfarmers carries exposure to several consumer categories through businesses including Bunnings, Kmart and Officeworks. A renewed rate increase would place more pressure on households already confronting higher prices.
The wider market’s biggest movements
Among companies outside the ASX 20, Mesoblast surged 27.32 per cent, SiteMinder gained 22.74 per cent and Zip rose 22.60 per cent.
The sharpest weekly falls included 4DMedical, down 33.51 per cent; Tuas, down 29.95 per cent; Catalyst Metals, down 17.47 per cent; and Champion Iron, down 13.35 per cent.
Those percentages require context.
The movements in BHP, Commonwealth Bank and other very large companies had substantially more influence on the index than similarly dramatic changes among smaller companies.
A 20 per cent move in a relatively small stock may attract more attention than a two per cent rise in a major bank, but the bank can have the greater effect on the market.
How the ASX 20 moved
The following list uses the S&P/ASX 20 constituents and five-session movements reported at the 30 October close.
Where the component feed did not publish a valid five-day comparison, no figure has been estimated.
BHP Group: Up 4.56 per cent
Commonwealth Bank: Up 1.66 per cent
Rio Tinto: Down 2.20 per cent
National Australia Bank: Up 0.48 per cent
Westpac: Up 0.08 per cent
ANZ Group: Up 1.92 per cent
CSL: Up 2.05 per cent
Macquarie Group: Up 2.19 per cent
Wesfarmers: Down 4.48 per cent
Woodside Energy: Up 1.43 per cent
Goodman Group: Up 6.85 per cent
Telstra: Five-day comparison unavailable from the cited component feed
Woolworths: Down 3.66 per cent
Fortescue: Five-day comparison unavailable from the cited component feed
Transurban: Down 2.40 per cent
QBE Insurance: Down 1.21 per cent
Aristocrat Leisure: Up 0.63 per cent
Northern Star Resources: Up 4.59 per cent
Sigma Healthcare: Down 0.36 per cent
Brambles: Down 1.20 per cent
The companies dominating the conversation
Coles was the week’s standout media-facing company for the wrong reason.
Its trading update produced an outsized repricing and drew attention across the grocery and retail sectors. Woolworths and Wesfarmers were also scrutinised as investors considered how stubborn inflation and another possible rate rise could affect sales volumes.
Bank of Queensland offered a more positive corporate signal.
The bank reported that its FY26 net interest margin had risen six basis points to 1.70 per cent, ahead of the 1.68 per cent expected by the market according to contemporaneous reporting.
Bank of Queensland shares rose 5.8 per cent on Thursday, while the major banks also rallied.
Endeavour Group finished Friday at $3.39, up 4.31 per cent on the day, and released the results of its annual general meeting.
The movement was notable during a week in which investors were highly sensitive to consumer-facing companies. The AGM result should not, however, be presented as the sole cause of the share-price increase without further supporting company guidance.
Mesoblast’s 23.4 per cent Thursday rise and 27.32 per cent weekly gain returned the biotechnology company to the centre of market attention.
For editors, it is important to separate the size of that percentage movement from its influence on the index. Mesoblast was an eye-catching performer, but it did not drive the ASX 200 in the way BHP or Commonwealth Bank did.
Qantas remained part of the broader market conversation as investors watched travel demand and company updates.
However, the primary-source review did not locate a fresh Qantas announcement that justified attributing a major weekly market movement to new company information. The airline should therefore remain on the monitoring list rather than being forced into the week’s causal narrative.
Is Australia’s IPO market reopening?
The official ASX new-listings pipeline remains active but selective.
ASX’s upcoming-floats page included formal applications with offer timetables extending through October and at least one anticipated listing on 30 November.
The exchange notes that its page covers companies for which a formal listing application has been received. It does not represent every company privately exploring a float.
The wider debate concerns whether Australia’s public market is sufficiently competitive when high-growth businesses can pursue capital in the United States or remain privately funded for longer.
ASX has previously raised possible reforms designed to improve the attractiveness of the local market. These include debate about reducing minimum free-float requirements and streamlining aspects of the admissions process.
An enhanced fast-track pathway for qualifying applicants can shorten the review process, reducing the execution risk created when market conditions change during a long IPO timetable.
That does not remove the more fundamental challenge.
New floats still require credible earnings or a convincing growth pathway, sensible pricing and enough genuine free float to support trading after listing.
Investors can already obtain diversified exposure through low-cost exchange-traded funds or buy established, liquid businesses. A float must therefore offer more than novelty.
The current pipeline suggests that the IPO window is open, but it is not indiscriminate.
What investors will watch next
The Reserve Bank’s next decision now sits at the centre of the domestic outlook.
Any change in cash-rate expectations will flow rapidly through banks, retailers, property trusts, listed developers and companies carrying substantial debt.
Investors will also watch whether the materials recovery can continue, whether BHP can hold its rebound and whether consumer companies provide further evidence of slowing demand.
Overseas, technology-sector volatility, commodity prices and the United States interest-rate outlook will continue to shape Australian trading.
The week’s 1.28 per cent headline gain was encouraging, but it was not a broad declaration of confidence.
It was a rotation towards miners, selected financials and property securities—and away from consumer businesses facing a more difficult inflation and interest-rate equation.
Market dashboard
S&P/ASX 200: 8,908.1, up 1.28 per cent for the week
All Ordinaries: 9,025, up 1.34 per cent
S&P/ASX 20: 5,214.7, up 1.11 per cent over five sessions
Best sector: Materials, up 4.06 per cent
Next-best sector: A-REITs, up 3.77 per cent
Weakest sector: Consumer staples, down 5.13 per cent
Major large-cap winner: Goodman Group, up 6.85 per cent
Major large-cap loser: Coles, down 11.77 per cent
AUD/USD: Approximately US70.35 cents at the weekly reference point
Gold: Approximately US$3,885 an ounce, down 3.12 per cent on the cited weekly measure
Brent crude: Approximately US$117.70 a barrel, up 0.68 per cent on the cited weekly measure
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