First, the sell-side and buy-side insisted “Trump 2.0” would be bullish for US equities, as evidenced by optimistic 2025 price targets for US benchmarks and the widely-shared view that US stocks would once again be the best-performing equity market on the planet.
When Wall Street started to waver and US outperformance slammed into reverse just a few weeks into Donald Trump’s second term, the narrative shifted. Suddenly, falling stocks were part of the administration’s grand plan. Trump, some market participants insisted, actually wanted a stock correction.
Counterintuitive as that sounded for a president who spent an inordinate amount of time during his first term boasting in all-caps on social media about every new Dow record, Trump, Scott Bessent and a whole host of administration surrogates, including Chris LaCivita during a recent interview with Politico‘s Dasha Burns, picked up on that narrative to explain away the sixth-fastest 10% US stock drawdown in 100 years.
The “3D chess” story’s still in play, but now it’s augmented by a new excuse for tariff-related market uncertainty: The uncertainty’s not actually tariff-related. That’s a great fit for a post-truth world where facts aren’t just irrelevant, they’re out of style entirely, which is to say the new American right doesn’t believe in facts as a concept. The irony of TruthSocial is that it’s built entirely on demonstrable lies.
The new story’s pretty simple: The problem for US stocks isn’t trade uncertainty, it’s the Magnificent 7 and also DOGE, with the former hitting stocks mechanically and the latter dragging down growth expectations.
It’s impossible to refute the contention that US stocks would be doing better in 2025 were it not for a ~14% decline for the top names. That’s true by definition. The mega-caps comprise an enormous share of US equity market cap, and they’re back-footed, so yes, a big part of the problem for cap-weighted US benchmarks is that the names which matter most in those benchmarks are lower. If that counts as revelatory, we need to raise the bar for revelation.
More to the point, two things can be true at the same time. Plainly, the DeepSeek shock was a blow to Mag7 sentiment, and it might be viewed in hindsight as the moment the US tech “capex bubble” burst. But that doesn’t mean the concurrent surge in trade uncertainty didn’t contribute to US equity losses. It plainly did.
As for the attempt to absolve “Tariff Man” of blame for the correction by shifting it (the blame) to DOGE, I’m not sure that’s exculpatory. Who put Elon Musk in a position to burn down the US government? Trump did. Now Tesla’s burning, figuratively and literally. The stock’s down 50% and the cars are targets for arsonists. On Friday, Trump threatened to track down Tesla vandals and put them on a plane to El Salvador, where they’d be locked up with gang members in Nayib Bukele’s giant “terrorist” detention center on US taxpayers’ dime. (And no, I’m not kidding. He said that.)
Here’s the thing: Even if you want to insist, as BofA’s Michael Hartnett did in his latest, that Q1’s “asset price catalysts [are] DeepSeek and DOGE, not tariffs,” you can’t just ignore all the people — CEOs, small businesses, consumers, homebuilders, fund managers and so on — on the record saying that in fact, their biggest concern right now (or one of their biggest concerns) is trade uncertainty. Are those people just wrong? If so, about what? About the nature of their own angst? Is that what we’re telling people now? “Sure, you say you’re worried about tariffs, but deep down, you’re worried about a Chinese AI startup, diminished US soft power from the shuttering of USAID and your mother, who didn’t love you enough.”
Why are we second-guessing and implicitly psychoanalyzing the scores upon scores of market-adjacent economic participants screaming that trade uncertainty’s an issue? In the same note cited above, Hartnett was at least generous enough to mention record-low small business sentiment in Canada (on the left below), which can’t plausibly be written off to DeepSeek, nor to DOGE, although you could argue that some Canadians are concerned about the prospect of annexation.
On the right is the projected increase in the average US tariff rate, which is poised to quintuple.
Although he conceded that reciprocal tariffs (the next “scheduled” trade escalation from Trump) could “infect the global data” starting next month, Hartnett cited the rally in German stocks and Chinese tech as evidence that “no one really believes” a trade war will lead to a “recession or a bear market.”
Maybe, but another catalyst for DAX outperformance is the loosening of Germany’s fiscal straitjacket, and the Hang Seng Tech trade’s just hot money chasing the Chinese AI story and CCP “stimmy” pledges. Those drivers are more than enough to offset the threat of a trade war in the near-term, particularly given how extreme US outperformance was headed into the year, but what about over the medium- and longer-term?
Anyway, I’m skeptical of attempts to spin tariffs as anything other than what they are, which is a consumption tax and, just as importantly, evidence of an inclination towards uncooperative international relations, which is self-evidently counterproductive in an irreversibly interconnected world.
As for DOGE, anyone who supports what Musk’s doing can jump off a bridge for all I care. It’s nefarious on multiple levels, everyone knows it, and now, according to The New York Times, Trump plans to brief Musk on top secret plans for a shooting war between the US and China. (Trump denied the reporting.)
Maybe it’s just me, but this is all seems manifestly insane on most days and asinine on all the others. I’m not personally selling equities. In fact I was among those pumping $57 billion into equity-focused ETFs in recent sessions. But to reiterate a point I’ve made in these pages previously, Trump in The White House is a gamble. Although the MAGA tent’s a lot bigger now (i.e., the 2024 election isn’t as amenable to monocausal analysis as the 2016 election), at heart the movement’s a Hail Mary pass in the context of an under-educated electorate at wits’ end with a neoliberal order that stopped delivering for everyday people in the West.
America bet the house on a long shot in November. Could it work out? Sure. Don’t be surprised if it doesn’t, though.
I sold into the post election rally, and then sold most of what I had left in mid-February. There’s such a wide dispersal of outcomes possible, and I just want to take the worst ones financially off the table. What I have left are a few positions I have large gains in in taxable accounts.
I understand I could miss out on a lot of gains, and in no way feel that I know I’m making the right decision from the standpoint of returns down the road, but just feel I’m acting out of the same sensibility H expressed in Killing the Golden Goose earlier today: I don’t want to be richer, I just want to keep up with inflation, or at keep up close to inflation, and 4% +(as I formerly said) “risk free” is enough to do that right now.
Sadly, the wide dispersal of outcomes now includes seriously undermining the dollar’s reserve currency par excellence status, and I’m at my wits end what to do about that. I can’t believe I’m saying this, but I’m beginning to regret not buying gold post election.
I can certainly understand that. I mean, does it actually feel like a bottom has been reached or stability restored? Do we even have a read on how tariffs and government job cuts are going to hit spending and corporate bottom-lines yet? (We don’t even know precisely what tariffs will begin on April 2nd, or exactly how many government jobs have been permanently cut or lost.) Every day brings more threats, more judge’s rulings, and more reversals. As of closing today, the market is essentially where it was a month prior to the election. You could have done a lot worse than 4% cash during that span.
A brief look at the Marketwatch and other splash pages show a parade of calls for an oversold rally from here.
Perhaps on a seasonal basis and, as our Dear Leader hinted at recently, there may be mechanical model-driven flows from bonds into equities during the last week of the quarter.
My question to Michael Hartnett would be, “Given these huge flows you are pointing at, why isn’t the market higher? Who are the sellers??”
Right? All this dip buying and SP500 can’t break through overhead 200D. We start buyback blackout soon.
If you wanted to attack the US, or at least go at it hit and run, what information would you like to have? For starters how about US military strategy, information on all defense contracts, satellite communication systems, higher education research contracts, US treasury payments, details of the electrical grid and every piece of information possible about every US citizen for starters. I hope the stable geniuses running the show have around the clock security on one Elon Musk. He would be quite the catch or blackmail target. Is anyone surveilling all his communications or does that conflict with getting in 18 holes.
Or how about Musk’s blackhat minions. Anyone keeping an eye on them.
Ah yes, creeping closer to the almighty Smoot-Hawley tariff line. The pinnacle of American exceptionalism and global prosperity. Isn’t it great?
You’ve (H) reiterated this point many times, but this tariff uncertainty is like a funhouse mirror without the fun. Much like this nation’s budget deficit and debt financing being likened to our household budgets, trade deficits have long been distorted as signs of weakness (and now rank exploitation of our “very stupid” largesse). And now we’ve just started another round of trade deficit distortion with the cornerstone that IMPORT tariffs are NOT paid by IMPORTERS, but by EXPORTERS.
If we are to believe what we’re told, and I’m not sure why anyone is doing that anymore, import tariffs will solve our budget and debt woes AND re-industrialize this nation back to the oil refiners and copper miners from whence it came. What is it about free money and great riches and good jobs that everyone’s so worried about?
But if we can’t or are unwilling to agree on who pays import tariffs (or what they do to trade flows and sentiment), then it’s pretty much guaranteed that no one’s going to wade into the details of our trade with our North American neighbors, so I will keep it simple. Canada and Mexico are, by far, our two biggest export markets (~ 1/3rd of total) — China is a distant third. The three are roughly equal in terms of their imports into the US, and all three “enjoy” a trade surplus with the US, although Canada’s is comparatively minor.
But if you look at US-CN-MX trade flows on a per capita basis, the prevailing narrative gets even more wobbly. Both Canada and Mexico buy much more from us on a per capita basis than we buy from them, even though they are both poorer than we are on a per capita basis (Mexico considerably so). Does a fewer number of poorer people buying more from a greater number of richer people sound like rank exploitation of the latter to you? I know that’s an overly-simplified construction, but I don’t think people are aware how “good” we have it, nor how when it comes to co-manufacturing, Canada and Mexico are by far the best partners we have or will ever have.
I don’t have a reference/link handy, but if anyone is interested in just how a little trade uncertainty goes a long way, trace the life of the manufacture of an ordinary pair of jeans that, from the get-go, start off with US-advantaged cotton which seems wrong-footed from the jump, and just gets nuttier from there.
You have been too kind to A.I. It is something you rent, you don’t own. My vision sees it as ‘moat-less’ which implies to me that there will be thousands of regenetive A.I. systems – at like, a dime a dozen. One for every smart team from every podunk group. Hell., my small hedge fund developed several. A.I. structures and made tons from them – sold one, lost two – but our A.I. did not have the precision of Blockchain – no need. For many things a few seconds mean nothing and saves 99% of the capital needed. Seriously there is nothing really fancy there. This business is the future for sure, but no one is going to dominate this IP – and the equity market will be severely disappointed – probably beginning about now – April Fools Day.
Way, way back in November, Will Lockett wrote a piece which supports what you are saying. He then asked:
“So, why does this matter? Well, big tech has poured billions of dollars into AI on the promise that it will get exponentially better and be wildly profitable in the future. Sadly though, we now know that simply won’t happen.”
Each new iteration uses more and more power for diminishing improvement. Coders will quarrel with this as will Wall Street since AI has been about the only bullish theme with any staying power over the past two years or so.
When I read Lockett’s article there was an interesting back-and-forth among some coders. A number of them brought up the idea that coders are relying more and more on AI tools to help them write code rather than seeking answers on forums such as stack overflow. Their concern was that it meant that there was less and less useful data upon which LLMs “educate” themselves. (A form of killing the golden goose?) Some retorted that the models would, instead, learn from themselves.
I cannot add much color since when I learned Basic, Pascal and then Fortran, I had to rely on books and exasperated colleagues. Along with hours of frustrating trial and error.