“Pundits say
markets hate “uncertainty.” That is true, but not very helpful. What kind of
uncertainty? After all, the world is always an uncertain place. Some types of
uncertainty are linear and finite. For example, there’s always a lot of angst
leading up to the monthly jobs report, as debate rages whether the number will
exceed or miss estimates. But the point is that the number will be released,
the market will quickly reprice, and the uncertainty will pass.
Other types of
uncertainty are open-ended. …
The stock market
engages in what I like to call catastrophic thinking. Presented with any risk,
it immediately imagines the worst-case scenario and quickly discounts it, which
in market parlance means pricing it in. This is what is happening with trade
and protectionism. The threat of protectionism is the No. 1 driver of the
downturn in equity markets because it’s such an open-ended risk”