Add to Bonds, Prune Equity Risk as Trump Uncertainty Turns to Confusion

Uncertainty was the watchword for Wall Street for much of the past few months. For better or worse, we seem to have shifted to confusion

What are tariffs supposed to accomplish? Are we, as a nation, serious about tariffs or are they something just to be tossed around at the whims of the president?

Companies and even individuals have shifted their behavior trying to optimize their business around the various tariffs that have been announced, and in many cases, paused. Though we just added to steel and aluminum and it is unclear where we are headed on some specific sectors or even countries.

Corporate response to tariffs, has, if anything, likely pulled forward demand (we also believe we see this in the consumption data).

Then there is the deficit.

Is DOGE over? What were the savings? What can be expected to come from DOGE going forward?

Is anyone in DC serious about the budget and deficit? It doesn’t seem that way.

Can we grow fast enough, as some hypothecate, to outgrow the spending cuts?

While, technically, there are tax cuts, many of them are extensions of existing policy that is set to sunset, minimizing the stimulative effects of the cuts.

The budget should spur spending, but at the cost of stubbornly high interest rates. If anything, the government itself and many dependent on government spending, probably artificially, slowed the economy over fears of cuts, so that should normalize.

Are we really pivoting to M&A, deregulation and "national production for national security"? If so, markets have more room to run, but a lot is priced in, so the commitment and focus will need to be real (one reason I’m hopeful we are shifting away from tariffs to other policies to grow the economy).

Figuring out the “steady state” of the economy is always difficult, but when the entire nation is acting on policy, it makes it very difficult to figure out what the “steady state” really is.

It is incredibly difficult to model policy – especially the sort of “seismic” policy shifts the administration is trying to put into effect.

I suspect that jobs have been overstated. The good news is that with the confusion around the next phase of policies, companies will be just as reluctant to fire as they will be to hire.

I also suspect that consumer spending has been front loaded to some degree. Not massively, but enough to potentially see spending slow in the coming months.

The impact of tariffs and potential inflation and supply chain issues should start showing up in the data in June and July. Conversely, the pauses, which helped, are probably not going to appear in the data until at least July.

So, look for some disappointment in the upcoming data (especially jobs) as the economy digests the policies and reactions to the policies that were put in place.

I am turning bearish on stocks here, again. The run up has been strong, but so much good news seems priced in, it is difficult to be extremely bullish, even with the Trump put and Trump pivot in effect.

I’m comfortable with longer-term bond yields. Even with the recent rebound in bond prices, I think we should be adding to bonds, while pruning equity risk.