Trump continues to give the media plenty of material for headlines and investors ideas for trading, even before officially taking office as President. This is largely due to his controversial statements.
On Monday, markets rejoiced that Trump had nominated Scott Bessent as Treasury Secretary, hoping his leadership would bring less global turmoil thanks to a more balanced approach.
If this were the case and negotiations were held instead of a unilateral introduction of tariffs, the negative impact might be less dramatic. However, one should keep in mind that reality can be different.
Either way, the optimism was short-lived. The next day, news broke that Trump promised to impose 25% tariffs on its major trading partners, including Canada and Mexico, sending the DXY soaring.
China could also be hit as soon as he takes office on the grounds of his efforts to crack down on illegal immigration and drugs. However, the United States could also feel the effects of these measures.
If implemented, the higher tariffs could significantly raise prices on everything from gasoline to cars. Whether this will solve the fentanyl crisis and illegal immigration is still unclear.
Is it all set?
As Scott Bessent has said several times, tariffs are a negotiating tool. Thus, if countries agree to invest in tackling drug trafficking and immigration issues in the U.S., the measures could be less severe.
Otherwise, if Trump follows his promises, global trade could face a severe stress test. The U.S. could see a further pickup in inflation, even as it hasn't yet returned to the 2% target.
As a result, the Fed could delay further rate cuts, which could ultimately increase business bankruptcies and continue pressure on households already struggling with debt.
Notably, S&P Global estimates that U.S. bankruptcy filings could reach their highest level in a decade as early as 2024, surpassing the 638 cases in 2020, which would be a new 14-year high.
While this may not trigger a financial crisis, it certainly doesn’t inspire much optimism for the economy or the financial markets. As such, it is essential to stay cautious when analyzing the upcoming data.
Will Trump's tariffs cause the S&P 500 to fall?
Wells Fargo recently raised its S&P 500 forecast for the end of 2025 to 6500-6700, up from 6200-6400, while Goldman Sachs expects 6500 points, despite the possibility of new trade wars.
Overall, optimism remains, but it should be noted that the market was in relatively good shape even before the financial crisis. In May 2007, the S&P 500 even reached a new all-time high…
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