Trump's Policies
The trade war is on everyone’s mind with America’s “Liberation Day” upon us! However, the reality under the surface is that the main macro narrative has been a rotation – nay… exodus – out of US assets into RoW. This was not supposed to happen with de-globalization and a MAGA trade policy. US assets – form equities to the USD – were supposed to be the safe haven from “America First” policies by Donald Trump. Meanwhile, the noose of material constraints is tightening around Trump, suggesting that a pivot away from brinkmanship may not be long away from “Liberation Day.”
Stocks will continue to struggle in the second quarter as President Trump tries to implement tariffs. Tax cuts will only temporarily dispel growth fears, if at all. Middle Eastern instability will add oil price surprises to an environment that is looking fairly stagflationary.
In this Special Report, GeoMacro Strategist Marko Papic argues that the Trump administration is flirting with high risk / low reward. Triggering a recession may be the end goal of the White House, but borrowing costs are not declining as much as they ought to be while President Trump’s political capital is on thin ice. Most recessions are caused by a “murder weapon.” It is rare that this weapon can be holstered. This may be one of those times.
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
Despite our bearish predisposition towards stocks, we are open-minded to anything that could challenge our thesis. As such, in this report, we review five upside scenarios for equities.
Although there may be a method to DOGE’s 100-mile-an-hour madness, we think the worries and uncertainty stoked by it and on-again, off-again tariff measures have increased the probability of a recession while bringing forward its start date. We are therefore tactically downgrading equities to underweight and upgrading fixed income and cash to overweight. Investors should pursue a defensive posture.
The US economy is set to enter a recession within the next few months. Stay underweight equities and overweight cash. Look to increase fixed-income duration exposure over the coming months. The euro is likely to strengthen and European stocks should outperform US stocks over the next month or so, but these trends will reverse by the middle of this year.
Fears of Europe’s decline due to Russian aggression and shifting US policy are overblown. President Trump’s tough stance on Ukraine is a strategic move to consolidate domestic support, not an abandonment of Europe, while Russia’s threat is exaggerated. As Europe responds with higher defense spending, stronger market integration, and greater political unity, investors should overweight European defense stocks and position for Europe’s broader market outperformance.