The impact of US trade and fiscal policy uncertainties on G20 equity returns: A market regime and quantile-based analysis

When market risks and uncertainties exist, investors' returns decline, and this situation diminishes investors' risk appetite in financial markets. This study examines how the United States (U.S.) trade policy uncertainty (TPU) and fiscal policy uncertainty (FPU) affect stock market performance under different market regimes (bear, normal, and bull) and seeks to answer the questions: ‘How does uncertainty in US trade policy affect stock market performance?’ and ‘How does uncertainty in the U.S. fiscal policy affect stock market performance?’ To this end, monthly stock returns from the stock indices of selected G20 countries were analyzed using the quantile-on-quantile regression method, using data from 2000 to 2024. The findings show that TPU has a generally negative and consistent effect on the stock market but exhibits limited positive outcomes under conditions of low uncertainty and high returns; conversely, FPU has a negative effect on returns at high levels of uncertainty, particularly in bear markets, weakens positive trends in bull markets, and exhibits a directionless relationship. Alongside this, it is seen that both TPU and FPU are fundamental risk factors that alter investor behavior and global market conditions, and that emerging economies demonstrate a stronger stance against the reactions displayed.