The US economy is truly difficult to navigate as Trump pushes forward massive fiscal policy changes
Predicting the markets and the economy is often a fool’s game — although Wall Street does it all the time and with mixed results.With that disclaimer in mind, I offer some sobering Wall Street thoughts about the future of the US economy and the markets as Trump 2.0 pushes forward with one of the most seismic fiscal policy changes in decades: A plan to re-arrange the global trade system using tariffs on all foreign goods.Again, this is difficult stuff to navigate, but Wall Street does have access to good data and contacts around the world so it’s worth hearing out some of its broad-stroke predictions and recommendations.First, ignore anything you see now — like that latest negative GDP print, or the market’s recent run-up.It’s based on backward-looking information or some likely irrational exuberance of the moment (maybe a trade deal with China).
It doesn’t take into account the full effect of what happened post “Liberation Day” on April 2 when President Trump announced across-the-board tariffs on the world.Then think about the future and what we know: No matter what trade deals are created, there will be tariffs on almost every foreign good — likely more than in the past.One of our biggest trading partners, China, will get hit the hardest with its super-cheap imports getting clobbered and the administration forcing US businesses to move manufacturing plants out of the mainland.The confusion will cause most businesses to downshift (i.e., an economic slowdown and possibly a recession by the summer), while the price shock will lead to some inflation, maybe almost double what we have now, to around 4%.Markets will take time to adjust to high inflation and slower growth, which is called stagflation.Stocks might not be a great place for a while, so it will be tough to speculate through higher prices.
Bonds might not be the usual safe haven when the economy falters because of inflation.I’m not saying I subscribe to any of this — I just don’t...