In the classic fable, the boy who cried wolf learns the hard way that lying destroys trust. In some versions, the wolf ends up enjoying a two-course meal, first the sheep, then the boy. Markets had their own “wolf moment” when Trump’s tariff threats sparked a mini-panic, sending stocks scattering like startled sheep.
However, after a few deadline extensions and a sharp V-shaped rebound, many investors began to think the tariff wolf was just bluffing. At the time of writing this, speculative risk appetite remains intact. With no major damage from the recent corrections and new highs taking shape, investors are once again chasing performance.
The trouble is, whether the wolf bites or just barks, the damage can be real. If the market’s resilience emboldens Trump to go ahead with tariffs, investors may find out too late that the wolf is not kidding at which point the flock gets mauled and the pain becomes very real.
On the flip side, if the threats fade and tariffs never materialize, markets may breathe a sigh of relief but that does not mean the danger is over. Volatility itself can do serious harm. Leveraged investors, lulled into a false sense of calm can still get trampled when someone yells “wolf” too loudly even if no wolf ever shows up.
The moral of the story is in markets, the wolf does not need to eat you for you to lose. Sometimes the panic does the job just fine. Stay hedged or end up as lamb chops.
On another note, I have been locking in profits on some positions lately. Well, I figured that I would take some chips off the table before the market tries to do it for me.