Markov, a Russian mathematician, remains well known for modelling stochastic processes, one of the classic illustrations of which is known as the alcoholic's gait: given that a drunkard advances by taking each step in a random direction, how long before he returns to his initial position?
In April, the markets displayed a series of violent and contrasting movements that will once again delight record-breakers. And yet, despite this extreme volatility, despite the contradictory news distilled at a steady pace by President Donald Trump, US equities ended the month almost unchanged... like a drunkard returning to his starting point without really knowing quite how he got there.
The comparison has its limits: at every step, the drunkard has no recollection of his previous step. On the contrary, we can assume that there are significant memory effects in the markets.
It also raises questions of particular interest for investors: if we're more or less back where we started, does this mean that the contradictory news of April has finally cancelled itself out? Or are markets being complacent and misreading a new reality?
These are all topics we address in this newsletter. However, a large part of the "rest of the world" (Europe, South America, and parts of Asia as well...) seems to us more attractive in light of current conditions. No more exposed to tariffs than the United States, these "non-US" investments help avoid being in the eye of the storm if Donald Trump returns with a new episode of wild economic innovation.
In a word: stay in the game by partially immunizing yourself against a further decline in the US exceptionalism premium.
