The implementation of President Trump’s tariffs on Canada, Mexico, and China has disrupted expectations surrounding U.S. economic performance in the first quarter.
The post-election surge in the U.S. stock market has diminished amid increasing worries over the adverse economic impacts from President Trump’s trade war. Following a drop in the S&P 500, equities are now 2.5% lower compared to their close on November 6, 2024, the first trading day after the elections. In his address to Congress last night, Trump reaffirmed his commitment to tariffs, acknowledging potential “disturbances” and suggesting an adjustment period, stating, “You have to bear with me again and this will be even better.”
The long-term anticipated total return for the Global Market Index (GMI) decreased in February, settling at an annualized 7.1%, down from 7.4% the previous month. This downward adjustment follows months of rising forecasts. The assessment is based on three models (defined below) for GMI, which is a global benchmark comprising the major asset classes (excluding cash).
President Trump announced that 25% tariffs on imports from Mexico and Canada will take effect today. Additionally, tariffs on China will rise from 10% to 20%. Both China and Canada quickly announced retaliatory measures.
In February, most major asset classes experienced gains, according to a selection of ETFs. The exceptions were U.S. stocks and a broad spectrum of commodities. Otherwise, global markets showed a generally positive trend last month.
Inflation has moderated in January, as indicated by the Personal Consumption Expenditures, the Federal Reserve’s favored inflation metric. Prices rose by 2.5% year-over-year through January, a slight decline from 2.6% recorded in December, marking the first decrease in four months. Prices “rose at a moderate pace in January, providing some relief following several economic reports suggesting that inflation may be rising again,” notes Rajeev Sharma, managing director of fixed income investments at Key Wealth.
● Chokepoints: American Power in the Age of Economic Warfare
Edward Fishman
Review via The Wall Street Journal
In “Chokepoints: American Power in the Age of Economic Warfare,” Edward Fishman elucidates why this banker so profoundly underestimated America’s financial might. Skillfully penned, “Chokepoints” presents a captivating narrative about the evolving landscape of geopolitics. It highlights how the U.S. leverages its economic and financial superiority for geopolitical purposes, particularly in its confrontations with China, Iran, and Russia. This book encapsulates the transition of the global economy from confident globalization to increased fragmentation, where economic warfare has emerged as a ubiquitous reality.
The persistent risk of inflation remains a concern for the bond market; however, apprehensions regarding a slowdown in the U.S. economy have recently taken precedence, contributing to the decline in Treasury yields.
U.S. jobless claims have increased more than anticipated last week, reaching the highest level since December. Despite remaining significantly below levels indicative of an elevated recession risk, some economists interpret the uptick as a sign that the labor market is beginning to slow.
As markets navigate through the myriad of policy shifts emerging from Washington, investor preferences have significantly evolved in recent weeks, particularly through a sector perspective. Utilizing a set of ETFs as indicators, the healthcare sector has emerged as the top performer year-to-date, overtaking financials, based on price performance up to Wednesday’s close (February 26).
