Andrzej Skiba, Head of BlueBay U.S. Fixed Income at RBC Global Asset Management, joined Forbes' Maggie McGrath to talk about the market reaction to Trump's retaliatory tariffs and if the market will continue to go down.
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NewsTranscript
00:00So we're seeing a flight to safety to treasuries. Meanwhile, I believe you're getting questions from clients about, I know it's impossible to fully time the market, but I think they want to know, is the pain that we're seeing today all that red?
00:13Is this the worst it will be? Or will the market continue to go down? And is there a better buying opportunity for equities in the future?
00:22Look, when we are considering investor behavior in recent years, buy the dip mentality has been so strongly ingrained in investor psyche.
00:34And we are really curious to see whether the same attitude will kick in in short order again.
00:43We think that we might have to wait a little bit for that. However, the simple reason being is we're not done with negative headlines.
00:53After the announcements yesterday, we expect to see all the retaliation announcements from U.S. trade partners.
01:02That is likely to add to volatility. Then you will see a response from the U.S. to those retaliation announcements, which further could exacerbate fears within the market.
01:14So we think for the time being, it's probably too early to buy the dip. There could be more volatility ahead.
01:21Having said that, when we're looking at the range of risk indicators, we're close to hitting peak bearishness in a number of segments of the market.
01:31So once policy clarity is gained, once we have better information about what the end state of this trade escalation is likely to look like,
01:42we do believe there will be some investors who will be willing to step into the void.
01:48But we might have to wait a little bit longer for that.
01:52And those investors that are likely to step in are the ones that do not believe in recession as a base case scenario for the U.S.
01:59We are definitely in that camp. This is not our base case assumption.
02:04But clearly, there's also a lot of investors who are very worried about recessionary risk ahead.
02:12You fed into my next question. I was about to lay out a math problem where bearish markets, inflationary economic conditions.
02:20Are we headed towards a recession? But you just said that is not your base case.
02:26So what is your base case for the U.S. economy right now?
02:30Look, we absolutely assume slower growth as a result of all that is happening around us.
02:37It's inevitable that this will have negative impact on U.S. growth ahead.
02:43However, we believe that it is still likely that we settle around one and a half percent growth in the U.S.
02:50There is some downside risk to that number.
02:54But from one and a half percent, even with some downside, there's quite a long way to negative readings.
03:01And to us, the key question is really about the health of the U.S. consumer, because so far,
03:08U.S. consumer has proved itself to be resilient to the extent that very few investors expect it.
03:16Two key factors really helped U.S. consumers. First, the fact that the labor market's been pretty strong.
03:24We have not seen any meaningful pickup in layoffs within the U.S. market, away from all the drama to do with Doge.
03:35We have not really seen any material negative shift in the labor market.
03:40And the other thing that helped is so many consumers refinance mortgages when the rates were around three percent.
03:47So they're not feeling the pinch from higher level of interest rates.
03:52If we start seeing layoffs increasing in a material way, to us, that would be a reason to worry.
04:02And that would be a reason to start discussing recession as a more probable scenario.
04:09But for the time being, we're just reflecting on the fact that when we're looking at sentiment data, it's been quite wobbly.
04:16It's been quite weak in recent weeks. However, when you look at hard data, it has been pretty robust.
04:24So we're not seeing the evidence yet in U.S. economy of the consumer weakening aggressively.
04:30And for as long as that is the case, we do not believe a recession will happen.
04:35In the same way as recession did not happen in 2022, when so many investors were expecting that outcome.