Allegra Catelli, Michael Msika and Richard Henderson
4 min read
In This Article:
(Bloomberg) — To Donald Trump, the rallying stock market is evidence that Wall Street likes tariffs. But investors say they’re just counting on the US president to back down.
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With the S&P 500 notching records despite promises that more tariffs are coming to everyone from Canada to Brazil to Algeria, Trump told NBC in an interview: “I think the tariffs have been very well-received. The stock market hit a new high today.”
The view among traders and strategists is largely the opposite. They don’t expect tariffs to come into full force, at least not as severely as Trump has threatened. That confidence that Trump will U-turn, just as he did after Liberation Day, and a belief that this week’s headlines are simply a negotiating ploy are why markets have shrugged off the latest escalation in the trade war.
“Trump often opens negotiations with maximalist rhetoric, but policy outcomes tend to be more moderated,” said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP. “The market’s relatively muted reaction reflects this skepticism.”
With Trump seeing markets endorse his economic policies, it raises the question of why would he retreat. Back in April, the pause on tariffs came in the midst of soaring Treasury yields and a selloff that sent the Nasdaq 100 into a bear market.
In Ominous Sign, Sellers Are Vanishing as US Stocks Smash Record
One sign that traders are less sensitive to tariffs is the slump in volatility metrics. The VIX Index this week sank to a February low and a similar measure for the Treasury market fell to the lowest since 2022.
To some, it’s a red flag that investors are overly exuberant. At an event in Dublin, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said markets are growing complacent, and that the Federal Reserve might even have to raise interest rates.
S&P 500 futures slid 0.6% in early trading on Friday, indicating a mild pullback after the index closed at a record. Trump also told NBC News on Thursday that he’s also eyeing blanket tariffs of 15% to 20% on most trading partners.
Panmure Liberum strategist Joachim Klement says investors are miscalculating the risks from Trump’s policies. He estimates that even if tariffs stay at current levels, it will worsen inflation and hurt the economy.
