The question of how much the stock market should fall in response to a potential US economic war is shrouded in uncertainty. A decline of 10% to 20% has been speculated, but the true impact remains unclear. Surprisingly, there hasn’t been guidance from seasoned market experts, and investors are left in a state of confusion, driven by the tussle between market sentiment and ongoing geopolitical tensions.
Donald Trump continues to issue uncompromising rhetoric regarding tariffs, stating that “sometimes you have to take medicine to fix something.” This hardened stance raises significant questions about the future of US tariffs on imports, leaving the market speculating whether they may reach approximately 24% or lessen significantly. The potential for escalating tariffs is instilling fear among investors, clamouring for clarity amid the chaos.
Corporate America seems reticent, with few industry leaders speaking out against the tariffs. Bill Ackman, the hedge fund billionaire, hinted at the daunting ramifications, likening it to an “economic nuclear winter.” However, influential voices from major corporations have yet to clearly communicate the impending price hikes to US consumers, adding to the overall uncertainty. Jamie Dimon of JP Morgan acknowledged that the tariffs may lead to inflation and raise recession fears, yet many CEOs appear hesitant to express dissent, fearing accusations of disloyalty.
The typical refuge for investors during turbulence—expectations of Federal Reserve intervention through interest rate cuts—may not materialise this time. With tariffs potentially driving inflation up, the Fed’s hands are tied, leaving investors restless as the prospect of slower economic growth may only unfold slowly.
Additionally, stock valuations were already high at roughly 23 times expected earnings earlier this year, suggesting an unsustainable market. Investors must navigate the dual concerns of tumbling earnings due to increased costs and whether an optimistic market outlook was overly generous. Notably, the S&P 500 remains only 4% below its level from a year prior.
A pressing concern arises if elevated tariffs become a standard feature of US policy. Jamie Dimon pointed out that delaying a resolution could exacerbate long-term negative effects, a sentiment echoed by many, for the policy is grounded on overly simplistic assumptions. Investors remain on edge for any indication of a milder approach from the White House, as news of a potential pause briefly propelled market optimism. In the absence of solid developments, further obstinacy from Trump could lead to an even deeper market sell-off.
The stock market faces substantial uncertainty regarding how much it should decline in response to Trump’s tariff strategies, with speculations ranging from 10% to 20%. Trump’s uncompromising rhetoric fuels investor fear as corporate America remains largely silent on impending price increases. The Federal Reserve’s capacity to mitigate impact through rate cuts is constrained, and high stock valuations exacerbate the situation. Long-term concerns about normalising elevated tariffs loom, leaving investors in a state of anxiety.
The current landscape poses significant uncertainties for the stock market, primarily driven by Trump’s rigid tariff policies. Corporate voices are largely silent, leaving investors with a limited understanding of potential long-term impacts and inflationary consequences. Meanwhile, traditional safety nets like the Federal Reserve’s intervention are less dependable. Overall, the situation remains precarious, with market reactions swirling in speculation amid the absence of decisive action from both the administration and corporate leaders.
Original Source: www.theguardian.com
