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 know.
Trump is touting increased foreign investment in the US, a sign his tactics are working.
Gas prices are down, as is the price of eggs.
China might cave in our trade negotiations.
And maybe he’s right to say the short-term pain will be worth it to bring manufacturing back to Middle America.
Or maybe he’s kinda winging it now as the markets beat back his initial gung-ho tariff plans for a semi-lighter touch.
That confusion is one of the reasons Wall Street is so pessimistic and alerting clients to prepare for more than a little short-term pain.
For starters, wealth managers are warning, the tariff plan keeps changing country by country, industry by industry, almost daily.
There’s one set of negotiations that could yield deals (India, Japan, South Korea, maybe Australia).
There’s another deal with the UK and EU, the union of European countries Trump believes was created to screw the US on trade.
The fallback position for US business in such an environment is to cut stuff like jobs.
Then there’s the big kahuna — China — the ultimate trade enemy that has for years been given carte blanche to create an economy that shipped us cheap goods, and hollowed out our industrial sector.
Oh, and while they were doing it, they stole our corporations’ intellectual secrets as the price to gain entry to its markets, and their increasingly large middle-class consumer segment.
But that doesn’t mean we don’t need China.
They buy a lot of our agricultural products.
Selling us cheap goods keeps inflation down.
Many US small businesses — the backbone of our economy — rely on trade with China to manufacture stuff here since they source their parts over there.
Small businesses and farmers are an important part of the MAGA movement and they are increasingly vocal about how these tariffs will screw them.
Maybe that’s why Trump’s poll numbers are suffering.
Who knows how long it will take to negotiate a deal with the world’s most belligerent superpower.
It’s a wall of worry, and let’s hope Wall Street is wrong about what comes next.
Elon vs. WSJ
This column isn’t getting in the middle of the feud between The Wall Street Journal and Elon Musk over the report that Tesla sought a replacement CEO while Musk was holed up in the White House with Trump.
But if Tesla’s board didn’t begin some kind of succession process while Musk was indulging his DOGE obsession, it probably should have, say securities lawyers I spoke to in the aftermath of the contretemps.
There’s something called “fiduciary responsibility,” the duty a board member or a CEO of a public company has to shareholders.
While Musk has added DOGE to the list of things he does, Tesla hit a rough patch.
The stock was tanking until Musk recently made it clear he was turning his attention back to Tesla.
If you take your fiduciary responsibility seriously, according to these same experts, the board should have been kicking the tires about succession.
Full stop.
