The reasons for major market dislocations are often hard to determine, even in retrospect. The 1987 Black Monday crash, which wiped 22% off the New York Stock Exchange in a day, happened after buoyant optimism that the collapse of communism and growth of global trade would drive unprecedented prosperity. Then there was a sudden loss of confidence.

The sentiment now is very far from that, and yet that same exchange has hit record highs while the World Bank warns of the weakest global growth in 17 years. The world is breaking down, yet markets are breaking records.

The culprit for the growth malaise is clear enough: Trump’s chaotic assault on global trade, with tariffs flying like confetti at countries worldwide. Wars rage from Ukraine to the Middle East. The US president attacks his own institutions, the Federal Reserve included. Yet somehow the S&P 500 touched new highs last week, up 26% since April’s “Freedom Day” shock briefly rattled sentiment.

For SA, the pain is becoming very real indeed. Monday brought official confirmation that we will face 30% tariffs on all goods except raw materials from August 1. President Cyril Ramaphosa’s measured response pointed out what should be obvious to anyone with a calculator: the alleged trade imbalance that justifies these tariffs simply doesn’t exist in any rational accounting. But rationality has little to do with Trump’s trade policy, which makes negotiating with him difficult.

The famous “Taco trade” — the market bet that “Trump always chickens out” — looks increasingly threadbare. Yet investors seem curiously sanguine about this new world disorder. What exactly are they thinking? The following forces appear to be driving this paradox:

• The AI gold rush. Investors have convinced themselves that AI will solve productivity problems that have plagued advanced economies for decades. The Nasdaq has surged 34% since the tariff shock, driven largely by tech stocks promising AI-powered transformation. Companies will slash costs of people and speed up innovation, and everyone will somehow become more profitable even as the broader economy stagnates. It is a seductive story, though one that conveniently ignores AI’s voracious appetite for electricity and its tendency towards expensive hallucinations.
• Trump’s tax bonanza. His One Big Beautiful Bill (that is the actual name of the legislation) promises to shower middle-class voters and businesses with tax cuts while slashing regulation. Never mind that someone has to pay for this largesse — specifically, America’s poorest citizens and future generations saddled with exploding debt. Markets have a chronic inability to price long-term fiscal consequences, preferring the sugar rush of immediate stimulus.
• The interest rate tailwind. Central banks are still cutting rates, and consumers are still spending. Trade wars might be inflationary in theory, but their immediate impact on corporate earnings looks manageable from the corner offices of Manhattan.

Yet beneath this market euphoria something more interesting is happening. Swiss bond yields turned negative last week, meaning investors are literally paying for the privilege of lending to Switzerland. European markets have quietly outpaced US indices by about 15% when measured in dollar. The dollar itself has weakened 6%-10% against major currencies this year.

This suggests smart money is diversifying away from America even as headline indices hit records. And why wouldn’t they? Trump’s fiscal recklessness combined with his arbitrary trade policies has transformed the US from a reliable anchor of the global system.

While America weaponises its economic relationships the productivity benefits of AI will accrue globally. European and Asian companies will deploy the same technologies without the baggage of trade wars and fiscal profligacy. China, for all its problems, looks stable compared with the chaos emanating from Washington.

For SA investors the lesson is clear. Diversification has moved from prudent practice to survival strategy. The days when you could simply buy American and sleep well are ending. The new world requires spreading risk across multiple currencies, regions and asset classes.

The tragedy is that this need not have been inevitable. The global trading system, imperfect as it was, provided a framework for shared prosperity. Trump’s demolition job benefits no-one — not American workers, not global growth, and certainly not the millions of South Africans whose livelihoods depend on export industries.

But markets, in their peculiar wisdom, have already moved beyond mourning what has been lost. They are pricing in a multipolar world in which American hegemony no longer defines the rules of the game. Record highs now might just be the market’s way of saying goodbye to the old order.

History teaches that even the most established systems can collapse in a day. What feels impossible becomes inevitable faster than anyone expects. In 1987 traders couldn’t imagine a world without their comfortable certainties, and then suddenly they did. But the loss of confidence was fleeting — two days later the market had recovered.

Record markets now show an astounding embracing of uncertainty. It is hard not to feel that it is vulnerable to a shift in sentiment, and a shift would take time to recover. So far, diversification that is underweight the US has been the winning strategy.

• Stuart Theobald is chair of research-led consultancy Krutham. This article first appeared in Business Day.