Trump's Tariffs Aren't The Only Problem For The Stock Market
The stock market selloff has laid bare a crisis of confidence on Wall Street over Washington's policy direction, and tax-cut optimism — even the cuts themselves — may be not enough to lift investor spirits.
'The pace and sequencing of policy reform appear to have structurally impaired confidence, impeding growth forecasts,' said Lisa Shalett, Chief Investment Officer at Morgan Stanley, in a note to clients.
Meanwhile, the policy pivot to deregulation and tax relief Wall Street has been banking on since the election remains elusive. The problem isn't just politics; the math simply doesn't add up.
Even under the Republican base case, the cost of extending existing tax cuts is pegged at $4.5 trillion over the next decade. That's more than double the proposed spending cuts of $1.5 to $2.0 trillion, much of which would have to come from Medicaid and Medicare.
'Even in the best-case scenario, the implication is limited genuine progress on the 10-year debt and deficit forecast,' Shalett wrote.
Investors hoping for growth from new cuts like the repeal of the SALT cap or exemptions on tip income may also be disappointed.
According to Shalett, 'many of the proposals fall into [high fiscal multiplier] categories… [and] this is a very regressive policy stance, with the negative impacts unlikely to be offset by positive effects from tax cuts for higher-income households and corporations.'
The administration has floated tariffs as a revenue solution, but here, the assumptions are questionable.
According to the Trump administration estimates, fully implemented tariffs — 25% on Mexico and Canada, 10% on China — could generate $120 billion annually.
But that figure is based on 'a maximalist scenario enduring for a decade,' Shalett noted.
In reality, about half of Canadian and Mexican imports will be exempt under USMCA, and any revenue gains would likely be offset by retaliation, substitution, and declining import volumes.
'Tariff-revenue offsets [are] elusive,' Shalett added, and the unpredictability of trade policy has only made matters worse.
The S&P 500 may have pulled back, but it's still not broadly cheap. Shalett noted that 'with upcoming fiscal drag likely to weigh on earnings estimates, the S&P 500 is still not broadly cheap, despite improved risk premiums.'
Consensus earnings expectations have already dropped 3.5% for Q1. Shalett expects that 'negative revisions [will] continue, undermining the 'value' argument that may be emerging from the drawdown.'
Her advice is to stay selective.
'Consider being opportunistic amid recent turbulence,' she said, pointing to stable growers in software, health care, and media, as well as financials and regional diversification in EM, Japan, and Europe. As she put it.
'Too soon to declare the 'all clear,' the market will likely remain volatile and idiosyncratic.'
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Yahoo
27 minutes ago
- Yahoo
‘The market is as clueless as the Fed': Why this trader says stocks could continue to do well for months
As traders brace for a fresh round of U.S. inflation data this week, a new twist is developing in the way some are thinking about the likely impact of tariffs and the path that major asset classes could take from here. For Gang Hu, a trader at New York hedge fund WinShore Capital Partners, the conclusion is that stocks can still power higher no matter what this Wednesday's consumer-price index for May shows and despite continuing uncertainty about inflation. That's in contrast to the views held by many market participants through April 8 — when the Dow Jones Industrial Average DJIA, S&P 500 SPX and Nasdaq Composite COMP all fell to 52-week lows just three days after President Donald Trump's 10% baseline tariff on U.S. imports from most countries took effect following months of trade uncertainty. 'It might be another Apple or Microsoft': My wife invested $100K in one stock and it exploded 1,500%. Do we sell? 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What's more, previous fears of a U.S. recession have yet to come to fruition after years of speculation, even though recent data such as last week's jump in unemployment-benefit filings and a contraction in the services sector point to signs of a slowdown. The result is that the stock market has generally stabilized. On Monday, U.S. stocks closed mostly higher as traders awaited details of U.S.-China trade talks being held in London. The S&P 500 and Nasdaq Composite finished the session at their highest levels since February, at 6,005.88 and 19,591.24 respectively, despite lingering questions about the inflationary impacts of tariffs. Also on Monday, analysts at Barclays said signs of stagflation, or the unwelcome mix of slowing economic growth and increasing inflation, have 'crept back' into the data, and this week's inflation report has the potential to show 'the first real evidence of tariff-linked price pressures.' Even so, one-year BX:TMUBMUSD01Y through 30-year BX:TMUBMUSD30Y Treasury yields finished lower after a monthly survey from the Federal Reserve Bank of New York indicated nationwide consumer expectations for inflation had dropped in May. Hu has demonstrated a propensity for being on target with his thinking on inflation. In July 2022, he told MarketWatch that 'inflation is going to be stickier than most people imagine,' which turned out to be the case. Less than a year later, in February 2023, Hu said inflation could easily take more than a year to decline enough for the Fed to cut interest rates. The Fed raised borrowing costs to as high as 5.25%-5.5% in July of that year, then left them unchanged for more than a year before delivering its first rate cut in September 2024. According to Hu, tariffs are a bit of a double-edged sword. 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28 minutes ago
Trump's actions in Los Angeles spur debate over deportation funds in his 'big, beautiful' bill
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Newsweek
32 minutes ago
- Newsweek
Gavin Newsom Compares Donald Trump to Emperor Palpatine
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. California Gov. Gavin Newsom's office shared a meme portraying President Donald Trump as Star Wars villain Emperor Palpatine. In the video, Palpatine's voice reads out a Truth Social post by Trump talking about the riots in Los Angeles. The Democratic governor and Republican president have clashed over the latter's decision to send in National Guard troops and Marines to quell the disorder that erupted from protests against federal immigration raids in Los Angeles. A ONCE GREAT AMERICAN CITY HAS BEEN OCCUPIED! — Governor Newsom Press Office (@GovPressOffice) June 10, 2025 This is a developing article. Updates to follow.
