Tariff turmoil. Threats against Iran. An anti-immigration surge that has taken two innocent lives. <\/p>\n
And there\u2019s a sizable slump hitting the stock, bond, precious metals and cryptocurrency markets.<\/p>\n
What\u2019s the connection? <\/p>\n
The answer is: Not much.<\/p>\n
Markets go up and down; it is easier to ride out a downturn when you realize the giveback is but a small percentage of the recent gains.<\/p>\n
\u2014 Investment Manager Barry Ritholtz<\/p>\n
When it comes to Trump policies, investors have come to realize that Trump is often all talk, little action\u2014that\u2019s the underpinning of the \u201cTACO\u201d trade, for \u201cTrump Always Chickens Out,\u201d which I described in May<\/a>. <\/p>\n As recently as Jan. 20, for example, the Standard & Poor\u2019s 500 index fell by more than 2% in a possible reaction to Trump\u2019s saber-rattling over Greenland and threat to hike tariffs on European countries he felt were thwarting his imperial ambitions. <\/p>\n Get the latest from Michael Hiltzik <\/p>\n The next day, the index began a comeback, rising nearly 1.2%. By three sessions later, it had recovered all that first day\u2019s loss. The index went on to set an all-time record on Jan. 27, one week after the Greenland sell-off. <\/p>\n The latest sell-off in the investment markets doesn\u2019t appear to be connected to Trump\u2019s policymaking. The current narrative blames artificial intelligence. There\u2019s an inchoate expectation that AI will have a great economic impact, though little of that has emerged thus far, and no one is very clear on what form it will take<\/a> or even whether it will happen at all<\/a>.<\/p>\n Investors and investment analysts don\u2019t really know what to make of AI. From reading the most recent market commentaries, one might conclude that investors are unnerved by the potential of AI to upend industries across the spectrum. <\/p>\n \u201cFor two years, we have been talking about how AI is going to change the world,\u201d Michael O\u2019Rourke, chief investment strategist at Jonestrading, told Bloomberg<\/a>. \u201cIn the past two weeks, we have seen signs of it in practice.\u201d<\/p>\n The evidence that most Wall Street pundits cite is the downdraft in technology stocks, including software companies that (according to the narrative) may lose their franchise to AI bots. The tech-heavy Nasdaq composite index has lost a cumulative 5.6% since notching a high on Jan. 28 and has lost 6.2% since its all-time intraday high, reached on Oct. 29.<\/p>\n Yet companies that are seen as winners in the AI derby, such as Google parent Alphabet (down 5.4% this week) and chipmakers AMD (down about 26% since its recent peak in late January) and Nvidia (down 7.5% in the last week), also have been caught in the downdraft. <\/p>\n Leaving the hard numbers aside, conjectures about the effects of AI on individual companies are exactly that \u2014 conjectures. The specific trigger of the current downdraft, it\u2019s said, was the release by AI company Anthropic of a tool with which law firms can use the company\u2019s Claude AI bot for tasks including document reviews and research. <\/p>\n Anthropic\u2019s announcement this week sent shares of legal publishing and legal technology companies plummeting. Thomson Reuters, the publisher of Westlaw, was among those most severely hit \u2014 down nearly 20% since the announcement. <\/p>\n Yet Anthropic\u2019s real impact on the legal publishing and tech businesses is, at this moment, the subject of sheer speculation. No one can say whether the AI firm will actually dislodge the incumbent providers, several of which already claim to be powering their services with AI. <\/p>\n The sell-off was driven by \u201ca lot of unsophisticated investors just really thinking that AI is going to immediately overnight take away the business of these legacy players,\u201d Ryan O\u2019Leary, a research director at International Data Corp., told Law.com<\/a>. \u201cA lot of this stuff has been offered for years from the legacy legal technology providers.\u201d<\/p>\n Much of the recent commentary is produced by investment mavens searching for explanations for market moves in recent news nuggets. That\u2019s always a mug\u2019s game. Investors are looking in the wrong place when they try to tie market swings to current events.<\/p>\n (I know whereof I speak, for I used to have the job of conjuring up just such explanations for a market story on a daily basis.) <\/p>\n My favorite investment guru, Barry Ritholtz, author of the 2025 primer \u201cHow Not to Invest<\/a>,\u201d points out that the markets typically give back some portion of their gains after steep run-ups. <\/p>\n \u201cMarkets,\u201d Ritholtz wrote, \u201cgo up and down; it is easier to ride out a downturn when you realize the giveback is but a small percentage of the recent gains.\u201d<\/p>\n That may be what\u2019s happening now. The Standard & Poor\u2019s 500 index has lost about 43 points this year. But that\u2019s less than two-thirds of a percentage point, and it comes after the index turned in average annual gains of more than 23% from the start of 2023 through the end of last year. The Nasdaq composite has lost about 700 points this year, but that\u2019s about 3% of its value, and it comes after gaining 43.4% in 2023, 28.6% in 2024 and 20.4% in 2025.<\/p>\n This record evokes the classic remark of physicist I.I. Rabi at the 1954 hearing convened to consider stripping J. Robert Oppenheimer of his security clearance because of his opposition to developing the hydrogen bomb. After listing Oppenheimer\u2019s wartime accomplishments, including overseeing the invention of the plutonium bomb, Rabi asked the inquisitors, \u201cWhat more do you want, mermaids?\u201d<\/p>\n Stocks and bonds aren\u2019t the only investment showing signs of exhaustion after a period of sizable gains. Bitcoin traded as high as $97,916 on Jan. 13; on Thursday it traded at about $63,426. That\u2019s a loss of more than 35% \u2014 but then, bitcoin is notoriously volatile.<\/p>\n None of this means that the investment markets\u2019 performance is always driven by animal spirits. Real-world events can have significant and sometimes lasting effects. But those events tend to be intrinsic to business rather than externalities such as White House maneuvers or geopolitics. <\/p>\n Consider what happened to the Dow Jones industrial average on Jan. 27. That day, shares of the giant healthcare company UnitedHealth lost nearly 20% of their value due to as a weak earnings report, along with the Trump administration\u2019s plan to limit rate increases for Medicare Advantage plans, an important component of UnitedHealth\u2019s business, next year. The company\u2019s plunge brought down the Dow by more than 400 points, or 0.8%. <\/p>\n But the Dow comprises only 30 companies, weighted by share prices, so a sharp change in an expensive stock can exert strong pressure on the average. But the rest of the market took the news in stride, with the S&P 500 riding a gain of about 0.4% to an all-time high.<\/p>\n It\u2019s also true that the markets aren\u2019t entirely immune to Trump\u2019s policies. The problem is that investors and market outsiders often take him at his word, when he\u2019s merely throwing out options, and thus overreact. Investors tend to take Trump\u2019s tariff threats as done deals, when in the final analysis he has chickened out.<\/p>\n Expectations that the tariffs would drive inflation much higher, for instance \u2014 an eventuality that might actually have a genuine effect on the economy and therefore on market values \u2014 haven\u2019t been borne out. But the reason, notes Paul Krugman, is that \u201ceffective tariff rates have risen much less than headline rates<\/a>.\u201d <\/p>\n