They are lonely souls, but there remains a power contingent of Wall Street executives and wealth managers who are telling their clients to ignore the noise.
Their message: The US economy is just fine. The market will work through its current puke and reach new highs before the end of the year. In other words, Tariffs, Schmariffs!
I’m not saying I agree with that sentiment – there are powerful indicators that just the opposite is likely to happen. A significant rally in the bond market foreshadows an economic slowdown, which is considered good for bonds because recession usually accompanies lower inflation.
Investors generally hate tariffs because they lead to slowdowns when countries respond with tariffs on US goods. A top hedge fund manager – with around $12 billion in assets under management — described the market mood as “pretty bad.”
Here’s why: Trump won’t shut up about tariffs. Yes, this week’s inflation read was better than expected but unpack its implications. The CPI was down at 2.8% and its core rate – minus volatile food and energy costs — is the lowest in four years. That suggests consumers aren’t spending in anticipation of bad stuff to come. The closely watched Producer Price Index similarly showed lower inflation.
And yet one of my top sources at UBS says the big brokerage house is predicting a 1,000-plus-point rise in the S&P by the end of the year to 6,600. Pimco, the big asset manager that focuses on bonds, is telling clients there is just a 35% chance of recession. Veteran tech analyst Dan Ives said in a report that he remains “firmly bullish,” on the tech-stock sector, which has taken some of the biggest hits of late. He believes “tech stocks will ultimately make new all-time highs during the second half of 2025 despite a disaster panicked sell-off to start the year.”
Tariffs have a history of igniting economic gloom. Economists believe they were the root of the Great Depression. After the 1929 crash, Congress passed something known as Smoot-Hawley (named after a couple of protectionist lawmakers), which raised tariffs on 20,000 imports and set off a wave of global protectionism.
Capital flows were stifled; the US export sector smashed as it was reeling from the initial shock of the crash and the economic slowdown that followed. Farmers devastated by the Dust Bowl were among the hardest hit.
Scary stuff because history does repeat itself. And yet it’s not that scary for our coterie of optimists.
They will point out that unlike the early 1930s, the US banking system now is solid – it can make loans because balance sheets are strong. There has been no 1929-style crash in stocks, just a correction from the indices highs that were propelled by a handful of tech names trading at nose-bleed levels.
Plus, corporate earnings are good; there is economic growth. We aren’t in a recession just yet so there’s a long way to an economic meltdown.
Yes, Trump seems to love what the markets hate – tariffs. But for all his talk, he’s been fickle about using them, often backing away when countries like Canada cave a bit to his demands. I have a source connected to a judge on the US Court of International Trade, which as the name implies settles trade disputes between the US and its global trading partners.
Very few, if any, trade-related lawsuits have been filed against Trump for attempting to abrogate trade agreements, like the USMCA, the successor to NAFTA that covers dealings with Mexico and Canada.
“Nothing yet really despite all this bloviating,” my source says.
