Trump Avoids High-Speed Train Wreck, but Economy Sliding Toward Recession
The market can enjoy a lift from positive trade deal news, but it will take some serious headlines to push a true rally.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
It is possible we get some deals announced this week?
Presumably, Apple’s AAPL announcement that it will make all iPhones for the U.S. market to India is based on some sense that India will get some sort of a deal with the U.S.?
Having said that, actual deals seem unlikely. The messaging is that they take time (which is true) but it does also seem to be walking things back a bit. I’ve always felt tariffs would be easy to negotiate (and we could have started there, rather than launching a series of tariffs against the world). Import quotas and restrictions on working with China will be difficult to organize.
I am firmly of the belief that other countries have been watching the various rollbacks unfold and feel that they can negotiate more aggressively than they would have otherwise.
Deals might provide a lift, but so much got priced in late last week, it will take real deals and some serious headlines to convince the market that the “deals” rally can continue.
Which brings us to a possible pivot: a pivot to domestic focused policies. Plans to build more here – especially anything even loosely related to national security. This is less of a “zero sum” game where things explicitly are taken from other countries. Over time, that is implicit, but I think works far better. Taxes would be part of this, and we are seeing some renewed social media focus on that. I'm not sure that what I’ve seen (no income tax for people making less than $200,000) is remotely feasible, but a pivot to domestic/stimulus oriented policies would be great for markets (equities far more so than bonds).
Otherwise, I don’t think the market has priced in what the economy will look like in a month without deals or pivot:
- Higher prices on many items
- Shortages of some items
- Gluts and lower prices on some items where foreign countries won’t take U.S. goods in retaliation (this would be good for the consumer, but bad for the producer, and I think this would primarily affect commodities/agriculture)
All you have to do is skim through social media and you will find plenty of stories about the rapid decline in shipping and freight.
CEO after CEO is talking about the risks.
My view, as expressed recently, is that people will behave conservatively in this environment seems to be playing out:
- If you go ahead with a growth/spending strategy and the economy slides into recession, you may well be fired
- If you play it conservative and slow things down, even if the economy rapidly rebounds, you are likely to keep your job and can implement the plans you previously had in place
As company after company, individual after individual, makes that sort of decision, we will see the economy slide toward recession unless we get deals or pivots.
I don’t see a high-speed train wreck for markets, as we are able to downplay negative headlines (with the assumption they will be walked back) and there is time for deals or the pivot to develop. Also, it take time for the supply chain issues to take effect.
So for now, continue to be cautious on equities, I think next move is likely lower, but we should see intraday swings reduce in size.
Rates: be careful here, as the deficit risks and potential inflation aspects of tariffs will rise to the fore.
