Trump Shock and the Global Economy
: How Should We View Market Volatility?
📢 Introduction
Hello, everyone! In this blog post, we will explore the impact of the Trump Shock on global financial markets. With major fluctuations in the U.S. and Japanese markets, we will analyze both short-term volatility and a mid-to-long-term perspective to help investors navigate the uncertain landscape. (This article is based on insights from YouTube discussions.)
🔍 Was the Trump Shock an Expected Change?
The global economy has been under strain for quite some time. Since around 2018, some experts argued that globalization had effectively ended. The following key events contributed to economic instability:
- U.S.-China trade war leading to high tariffs.
- COVID-19 pandemic temporarily easing tensions but eventually causing market bubbles.
- AI industry boom spurring tech-led growth but with questionable real economic impact.
🔹 The question remains: Has the AI-driven economy truly fueled substantial economic growth?
📉 U.S. Stock Market: Decline in the S&P 500 and Dollar Value
Many investors are concerned about the sharp drop in the S&P 500, but let’s break it down:
- The S&P 500 has dropped ~7% since the start of the year.
- Of this, 5-6% is due to exchange rate fluctuations, meaning the real index decline is relatively small.
- Historically, a 15% market correction is normal, and in 2022, the market fell by over 20%.
- Unlike 2022, this time currency effects are directly impacting investor sentiment.
📌 Key takeaway: The decline is more about currency fluctuations than actual market weakness.
💼 Stock Market Portfolio Bias
Over the past decade, the U.S. stock market has become heavily dependent on a few key companies. Consider the shift:
🔹 10 years ago: The combined market capitalization of FAAMG (Facebook, Apple, Amazon, Microsoft, Google) + NVIDIA was <10% of the S&P 500. 🔹 Today: These companies now make up ~30% of the index.
🚨 This means S&P 500’s performance is disproportionately influenced by just a handful of stocks. Simply investing in index funds may no longer be as effective as in the past.
📌 Key takeaway: Understanding market fluctuations and managing risk is now more crucial than ever.
💱 Exchange Rates and Investment Strategies: Leveraging Currency Movements
📈 Japanese Yen and Investment Opportunities
- The Japanese yen may appreciate due to the Bank of Japan (BOJ) tightening monetary policy.
- Over the last 20 years, 115 yen per USD was considered a stable rate, but now 135 yen is seen as the new equilibrium.
- Yen-based investors can take advantage of this to acquire overseas assets at lower costs.
📌 Strategy: Gradually buying USD-denominated assets may be a wise long-term move.
🏦 Warren Buffett’s Investment Strategy and Its Implications
Despite reports that Buffett has increased cash reserves, here’s what’s actually happening:
✅ Investing in short-term U.S. Treasury bonds, earning 4-5% stable returns. ✅ Expanding investments in railroads, energy, and infrastructure.
🔍 Buffett’s Core Investment Principles:
- Invest in companies with strong competitive advantages → Focus on long-term value creators.
- Avoid overvalued assets → Be cautious in overheated markets.
- Allocate assets with risk management in mind → Favor low-volatility, high-return investments.
📌 Key takeaway: Buffett’s strategy highlights the importance of defensive, long-term investments.
📊 Key Lessons for Individual Investors
🔹 Avoid panic and short-term volatility—focus on long-term investing. 🔹 Analyze company fundamentals—invest in strong, resilient businesses. 🔹 Utilize exchange rate fluctuations—consider global diversification. 🔹 Check portfolio exposure—avoid over-reliance on specific sectors or stocks.
📌 Smart investors take a disciplined approach and adapt to market conditions.
🎯 Conclusion
📢 Final Thoughts:
✅ Compared to past crashes, this market downturn is not extreme.
✅ However, economic structures are shifting, requiring adaptability.
✅ Over-concentration in a few stocks increases risk—diversification is key.
✅ Exchange rate movements present investment opportunities.
✅ Maintaining a disciplined, long-term strategy is crucial.
🌎 As market volatility remains high, ongoing analysis and proactive strategy adjustments are essential. Wishing you success in your investment journey!
📌 This blog post is based on expert insights from YouTube investment discussions.