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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
“The stock market is quite brilliant,” Donald Trump pronounced this week.
The US president, flanked by some of his most senior officials, was speaking at the G7 meeting in France about his deal aimed at securing peace with Iran. “Every time we talked about the possibility of peace, the stock market shot up like a rocket ship,” he said. “It never went down . . . The stock market is more brilliant than anybody there is . . . other than me of course.”
On several important points here, the president is precisely right. Stock investors really have cracked the code, figuring out how to navigate around his sometimes scattergun pronouncements.
This has been a struggle for the past year and a half or so. It has been hard to discern which of Trump’s statements matter, which don’t, which are rooted in some kind of observable objective reality, and which are not.
But we can see now a pretty clear pattern, which is that at the very first sign that the president is buckling on an unorthodox foreign policy decision that has affected the market, that is the time to pounce. Worrywarts (myself included) do what they always do, and fret over the details. Does a ceasefire mean peace is coming? When does it free up global energy flows? But, but, but . . .
It is clear now: None of this stuff matters. The important thing is the signal of when the president has had enough. Hence, from the point right at the start of April when Trump first spoke of the war being over in “two or three weeks”, US stocks have pushed more than 14 per cent higher in a nice smooth line. Similarly, the moment the US president “paused” his massive increase in global trade tariffs in April 2025, that kicked off a breathtaking ascent in stocks that faced no interruption until the US started bombing Iran.
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So, buying the dip remains undefeated. The alternative is to ignore these dazzling moments completely. If you had entirely disregarded both of these pretty significant moments in financial-market history and just sat in the S&P 500 index of US stocks since late March 2025, you’d now be up by 30 per cent.
In the relatively more dour government bond market, it remains a different story. US government bonds, or Treasuries, have never recovered from the drop in price they suffered around the start of the war. Investors in this market, who broadly consider themselves a more cerebral bunch than those in stocks, never bought the hints of a ceasefire with Iran. Bond prices have still not returned to square one, leaving borrowing costs markedly higher. With the prospect of interest rate rises ahead to douse inflation pressures exacerbated by the Iran war, and relentless more borrowing, this is likely to remain the case for some time.
Beneath the surface, it is clear that large, conservative investors like pension schemes, insurers, central banks and sovereign wealth funds are taking active steps towards reducing their exposure to risks around US institutional credibility. Wild geopolitical adventures may not matter to stocks as long as companies keep raking in earnings, but they do matter to bond investors, and they are acting on it.
This is subtle, it will take time to play out, and it is not about a risk that those investors might dump their Treasury holdings. But as speakers at the FT’s global bond summit this week pointed out, investors are taking the risk of political interference in US monetary policy seriously.
This concern could end up proving overblown. In his first post-meeting press conference as the new Federal Reserve chair this week, Kevin Warsh flirted with taking a hard line on inflation and raising interest rates — not cutting them as Trump repeatedly demanded of Warsh’s predecessor. Trump declared himself unbothered. But this is the honeymoon period for Trump’s Fed man from central casting. Some bond investors are still nervous of any meddling in rates in the run-up to the midterm elections in November.
In addition, officials responsible for issuing new government debt around the world — in Germany, the UK, Italy, Canada and the EU — all agreed that they are routinely now drawing in demand from parts of the world that were previously insignificant buyers. Accounts in the Middle East and Asia that normally take a dim view of anything but Treasuries are proving a vibrant source of demand for the first time. Matt Emde of Canada’s debt-issuing authority also reported “very strong” demand for his recent US dollar-denominated issue.
All of this is in its early stage. But what we may be seeing here is the tentative beginning of some healthy competition to the mighty US debt market. On the margins, the US will have to work a little harder to ensure it keeps drawing in the investors it desperately needs to balance the books.
“Brilliant” stock market participants are busy buying dips, ignoring the chaos, or both, and that makes perfect sense for them. But bond buyers are very much sweating the small stuff, interrogating the details and sniffing out alternatives to Treasuries, just in case. The two sides have both got the measure of Trump in different ways.
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