Weekly Recap: Market Volatility Continues

U.S.-China Trade War and Tariffs: Escalating tariffs, with U.S. rates on Chinese imports hitting 145% and China retaliating, caused global market volatility. New Zealand faced a 10% U.S. tariff, impacting export-driven investments like dairy and tourism, with the NZX 50 dropping 1.3% to 12,042.

Global Market Volatility: The S&P 500 and Nasdaq saw a “death cross” and sharp swings (S&P 500 down 4.7% since April 2), driven by trade tensions and bond market turbulence, affecting kiwi investments tied to global indices and safe-haven assets like gold.

Note: A death cross is when a short-term moving average (e.g., 50-day) crosses below a long-term moving average (e.g., 200-day) on a stock chart.

Performance Post-Death Cross:

Historical data suggests death crosses are not always bearish. From 1971 to 2022, Nautilus Research found average Nasdaq returns of:

•      +2.6% one month after

•      +7.2% three months after

•      +12.4% six months after

Roughly double the typical Nasdaq returns over these periods.

Potomac Fund Management notes that in 77% of cases since 1971, the Nasdaq was higher six months after a death cross.

However, severe declines followed in some cases, e.g., 2000 (dot-com crash) and 2008 (financial crisis), particularly when the death cross occurred after a 20%+ market drop.