Markets betting on economic strength, not trade deals: Ed Yardeni

Time of India

2 days ago

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"But the stock market has concluded that maybe the US economy is resilient enough to withstand all the volatility and uncertainty that is coming out of Washington on tariffs . And maybe the same thing seems to apply to the to the global economy," says Ed Yardeni , Yardeni Research.Yes, it very much looks as though the President Trump is aiming now at a 15% base tariff. For a while there it looked like he was satisfied with 10% and then would negotiate whether there would be any additional tariffs depending on the conditions that were open or close to American goods in various countries. But now it looks like he wants 15%.The reason for that is he needs it to help raise revenues to help to reduce the federal deficit. At the end of the day that tariff is going to wind up being a tax probably mostly at American businesses and American consumers and to a certain extent I presume that foreign exporters will be leaned on by their American customers to try to help to a certain extent. But all in all, he is getting kind of what he wants. It will probably be 15% base rate with the EU and then we will see whether the EU opens up. It is hard to imagine that they will because they have been relatively closed for quite some times because a lot of special interest groups that do not want to have easy competition for foreign companies.Well, the markets have priced in a fairly optimistic scenario. It is quite a radical change from what the thinking was in the markets back in March, April, and maybe even early May. But really ever since the president backed off or postponed his Liberation Day tariffs on April 2nd, he announced them on April 9th, he postponed them. And now we have got a hard deadline of August 1st. And we are getting some deals, but we certainly did not get 90 deals in 90 days, that that did not happen. And some of these deals that we have so far look more like frameworks than not.But the stock market has concluded that maybe the US economy is resilient enough to withstand all the volatility and uncertainty that is coming out of Washington on tariffs. And maybe the same thing seems to apply to the to the global economy.All in all, the global economy has held up pretty well despite all the turmoil about tariffs. This does not look like Smoot-Hawley, the 1930s tariff that brought the global economy down and maybe that is because economies are stronger. They are more services oriented. Tariffs are usually put on goods, not on services. But when you put it all together, the stock markets around the world, but particularly in the United States, are discounting what I have been calling since the beginning of the decade the roaring 2020s. There is a lot of focus on technological innovation and how that is going to increase productivity.Let us face it, there is a lot of excitement about artificial intelligence everywhere around the world. Everybody wants to suddenly build these data centres. Some of that is going to turn out to be hype. Some of that may turn out to be leading to overcapacity. But for now, it is happy days are here again.Well, I have been very focused on overweighting the US since 2010, and it has worked out really-really well. Not earlier this year, but now it looks as though maybe the US again looks like it is winning relative to other countries. Look, it is not that hard to underweight the United States and overweight the rest of the world because the United States accounts for 70% of the market capitalisation of stock markets around the world.So if you feel uncomfortable with that and you want to only put 65% in and therefore overweight the rest of the world that is fine if you can find the opportunities and there are opportunities including India, of course, which has already done remarkably well. But all in all, we are looking at a situation where investors are getting a little bit excited here, maybe too excited, but I am looking for bull-bear ratios to get to the point where there is just too many bulls. We are not quite there yet, but we could get there very quickly.Well, I think that sentiment certainly improved overnight in Japan. We saw those stocks doing very well. On the other hand, GM has been hurt by to the tune of a billion dollars by Trump's tariffs. And we have yet to really see these tariffs settle in. There is still uncertainty about exactly what they are going to be, but that uncertainty will be gone presumably within a couple of weeks, we will know exactly what the tariffs are. And the auto industry is still going to be challenged. I look at it as a long-term issue. The real long-term issue for autos is we are going to have autonomous cars.We are going to have cars that drive themselves and then the question is, what is the point of owning a car if you can get access to cars that will take you anywhere any time of the day, what is the point of having your own car parked in the parking lot of your work and or in the garage at night? On the other hand, if you want to make some money, you can buy a car and make autonomous taxi out of it. So, there is a lot of challenges here, but we may not need as many cars as we have out there if we can all just use an app to call a car.