How did the Trump Effect Trade turn into the Trump Retreat Trade?
After the November U.S. presidential election, the general assumption was that Trump 47 would be a replay of Trump 45.
This gave rise to the Trump Effect Trade:
Long stocks
Long dollar
Long cryptos
Short bond (expecting higher yields).
Long equities: High valuations along with signs of slowing growth have led to a retreat..
Long dollars: Falling bond yields and European stocks outperforming the U.S. have led to more of a two-way risk in a market that started out as a one-way bet based on the still threat of tariffs and a trade war.
Short Bonds: I will pass on why bond yields have plunged other than to say it has been the surprise in the new Trump era.
Long Cryptos: A purely speculative market that has not been able to become a safe haven has seen cryptos fall back sharply.
Trump Effect Scorecard
| Jan 20, 2025 | Mar 10, 2025 | ||
| S&P500 | 6049 | 5620 | =7.0% |
| NASDAQ | 19756 | 17468 | -11.7% |
| 10 YEAR BOND YIELD | 4.57% | 4.22% | -35bps |
| US DOLLAR INDEX | 1.0806 | 103.93 | =3.4% |
| EURUSD | 1.0429 | 1.0835 | -3.8% |
| USDJPY | 155.50 | 147.15 | -5.4% |
| USDCAD | 1.4304 | 1.4437 | +0.0% |
| USDMXN | 20.61 | 20.37 | -1,279% |
| BITCOIN | 106157 | `79724 | -24.9% |
So far, as this updated scorecard shows, the Trump Effect Trade is batting 0 for 4 (0 winners, 4 losers).
So, a better name should be the Trump Retreat Trade
Weaker stocks
Weaker dollar
Weaker cryptos
Firmer bonds (lower yields)
The tariff game plan
The wild card in the hope for a Trump 45 replay is tariffs. I must admit I assumed that the threat of tariffs would be used as a negotiating ploy but instead it has resulted in chaos and uncertainty in global markets.
So, what is the Trump administration game plan? From what I can gather it is betting on specific date to be a game changer.
April 2
April 2 is the date when reciprocal tariffs are set to go into effect, targeting those countries that levy high tariffs on U.S. products.
In this past weekend’s news programs I saw Commerce Secretary Lutnick cite April 2 several times as the game changer date.
The argument is that reciprocal tariffs will level the playing field for both businesses and consumers.
However, it depends on whether it results from tariffs on U.S. goods lowered overseas or U.S. tariffs on foreign goods increased
Then there is always the risk of unintended consequences. The most obvious is escalation resulting in a global trade war.
Another might be if tariffs on U.S. agricultural products, for example, are lowered, increasing the opportunity to sell abroad. This raises the question if farmers are able to sell more overseas would that result in less supply that could raise domestic food prices?
Is the tariff jury still out?
In any case, when the tariff dust settles, there will be winners and losers. Consumers would likely see higher prices for some foreign made products while some exporters might get a competitive advantage.
The Trump administration, meanwhile, seems to be betting on April 2 as the day when reciprocal tariffs turn the tables in favor of the U.S. by creating more certainty.
As an investor I hope so but so far markets are giving it a thumbs down.
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