It seems to be almost quaint to talk about financial markets when the US President is talking about making Gaza «the Riviera of the Middle East» under US “ownership” — a move categorically rejected by American friends and foes alike — and unleashing administrative chaos across Washington. But Donald Trump is also upending financial markets by ordering up tariffs on Mexico and Canada — and then temporarily delaying them just as they were set to begin. It’s made it difficult for businesses and consumers to know what’s coming. But the the specter of trade-war induced price hikes has already caused inflation expectations to rise — a worrisome development that could have significant implications for bonds and equities across the globe.
We’re only a few weeks into this new administration. So it’s too early to make any definitive conclusions about its overall future impact on markets. But it’s clear we are now beset with unpredictability on all fronts, including inflation. And that will raise the cost of everything from the cost of goods and services to the cost of holding long-dated assets. The only question is whether that can be offset by growth. I don’t think it can. So downside risk prevails, which is bullish for Treasuries, but bearish for equities, especially growth stocks.
