After 'Big, Beautiful' Win, Trump Must Avoid Return to Tariff Path

I have an incredibly simple take on the “big, beautiful bill”: It is good for markets and the economy.

There are lots of issues:

• The extension of tax cuts that were set to “sunset” costs money and doesn’t deliver much, but it's far better than them dropping off
• The deficit will rise..
• If the CBO projections are correct (a lot can happen)
• If the tariff revenue, which is currently real and is not counted, drops off
• So, maybe the deficit won’t rise as much as feared?
• Who won and who lost? Who seemed to be punished? Who seemed to get “gifts”? I honestly don’t care that much at the moment.

There are two things that are good:

1. It is a bill that made it through the house and the senate that got signed into law, providing clarity
2. Many of the tax breaks and stimulus impacts will be delivered up front, giving it a chance to propel the economy forward.

So, just the passing into law is good and could ignite animal spirits in the economy, which seem to be lagging the animal spirits infused in the stock market.

If we go down the tariff path then the market will struggle.

The market is depending on pauses and “deals” somewhere in the vicinity of the pause levels.

We seem to be getting “conflicting” messages from the administration:

• Scott Bessent seems to be indicating pauses and “finalizing” deals until August 1
• The president seems to be about sending letters and, as of today, “punishing” BRICs
• The “leaders” in the race to get a deal seem to be changing, as even countries like Japan and India (high on most lists of countries to ink favorable deals early) seem to have difficulty navigating the negotiating process with the administration
• Despite a lot of hype about a deal with China, details seem to be scarce, weeks after the announcements (is China slow playing things, like rare earths and critical minerals?) which will “irk” the president

I see biggest risk to the market as being a renewed fixation on tariffs as a “fix all” policy.

The probability of escalation remains low, but I would argue it has gone from the 5% sort of number to 20%. Markets will continue to price in an administration that is wary to get back to the March/April rhetoric (and Bessent in particular seems to be steering away from that), but the risk is increasing. Marginally so, but increasing, nonetheless.

What I’m looking for:

• A pivot to national production for national security. Own commodity-related stocks. Own energy production stocks (maybe that is part of commodity, but energy generation is such an important part of the current dynamic, it deserves its own bucket) — though this “sector” is not priced as attractively as the overall commodity-linked world. Whatever we need to build infrastructure, manufacturing facilities, etc., should be owned.
• If the 10-year gets back to 4.4%, then start extending duration again
• Global stocks and EM: Working on flushing out the investment thesis more fully, but the concept of the need to produce domestically things that are crucial for national security (including energy) is something that will not just occur in the U.S. but will occur across the entire world (as even Europe tweaks its ESG initiatives to make it more friendly to domestic energy production).

This final statement is sad (because it is so true): let’s keep our fingers crossed that tariffs don’t catch the president’s eye again, like they did earlier this year. This statement is so sad because “fingers crossed” doesn’t belong anywhere in a market letter, yet I see such a potential degree of randomness in the coming days, I’m stuck with that line.

A focus on national production for national security would be the next "big, beautiful thing" for me, and there is reasonable cause to believe that is the direction the administration will pivot (rather than back to tariffs).

In any case, I hope you all had an incredibly Fourth of July weekend and make sure you enjoy the summer regardless of what is happening in markets and the economy!