A lot has changed since a month ago when we asked Trade War or Pivot?

At the time we were looking for the administration to pivot away from trade wars to focus on other issues more in their direct control.

That was followed by Dealpalooza and Deep Breaths. While the deals didn’t really materialize, there was an overall “calming” of the noise out of D.C. There was less focus on trade (though tariffs were still a daily issue) and things like Budget 2026 started to compete for attention.

Finally, on Monday, we saw the Trump Put is Back!

Not only is the President 2 for 2 when advocating for people to buy stocks, but he is also now pointing to the stock market on a regular basis. He mentioned it in Saudi Arabia, and it seems like once again, he is viewing the stock market as an up-to-date assessment of his policies. I am not sure that focusing on stocks will achieve all of his goals (rebuilding the middle class through more jobs and a smaller deficit), but it gives us all some breathing room. However, undoing decades of ceding manufacturing to China and elsewhere will not get undone in months.

There are several things occurring that all point to potential upside for markets:

• Backing down on tariffs.
  • We still don’t know where things will wind up on chips (though the announcement to allow more chip sales into some countries in the Middle East indicates a willingness to open up sales. The CEOs of some prominent companies have become fixtures in Trump’s orbit and that proximity to the President helps get things done.
  • It remains a bit unclear what is occurring with the rare earths and critical minerals that China has at least threatened to stop (or reduce) sending to the U.S. The devil is in the details and there have been few details.
  • It is increasingly looking like 10% (with some commitment to buy things) forms the basis of a deal. While I’m not sure how that brings manufacturing back quickly, it does limit the disruption. We are not done feeling the impact of tariffs on the economy, or global sales, but we are in the range of “manageable” rather than destructive. Though we do need to see actual deals get inked, not that the market is pricing in “relatively easy” deals given what we’ve seen with the U.K. and China. It was interesting to see the administration take U.K. steel down to zero – they don’t sell us that much and a portion of what they sell is used for our nuclear submarines, so it makes sense not to “tax” ourselves. All signs that deals can be done and be far less harmful than where we were at the heart of the market decline (based on valid fears of policies that have been rolled back).
  • There is still risk surrounding tariffs. Tariffs were at the forefront of policy and were attributed almost mythical properties (heavily overstated). However, the administration could revert back to using them as a blunt instrument, which markets would absorb for a bit, but it would wear on the market and economy over time if we get back to that level of tariff usage (or threatened usage).
• Peace through Strength. While it is unclear how well this is being implemented between Russia and Ukraine, that might change as Putin seems to be drawing the ire of the administration of late. Peace through strength does seem to be working in the Middle East and the U.S. was clearly a force behind getting Pakistan and India to agree to a ceasefire. This is good and opens the door to savings down the road if the world’s “temperature” can cool down. The number of hot spots around the globe remains shockingly high according to most of our Geopolitical Intelligence Group members.
• Breaking down barriers and cutting through regulation.
  • Build Baby Build. Or Refine Baby Refine, or quite simply, we need “national production” for anything related to “national security.” Trump, from his real estate days, is well known for cutting through red tape and getting regulations lifted. That is needed now, and it seems like it is coming back into his focus (with Bessent helping pave the way).
  • Competing globally. We have a lot of rules that make it difficult for the country, or U.S. domiciled companies, to compete in some parts of the world. It didn’t matter much until China came on the scene with their Belt and Road Initiative. Now, does it make sense to keep all of our rules regarding international business development if it is giving China an unfair advantage? Especially with autocratic, resource rich nations. Many of the resources the U.S. wants and needs are in less-than-savory places. Do we continue to let China win, or do we compete more effectively? I’m not advocating rolling back all of our rules, but at the same time, we need to be realistic and pragmatic if we are going to beat China.
• Not trade deals per se, but mutually beneficial business arrangements.
• Budget 2026. Political capital needs to be spent here. This, not tariffs, should be the focal point of the administration for the next few months. I am not sure about “no tax on overtime” as that seems fraught with loopholes, but think a strong budget, focused on domestic growth, is key. I am concerned that some political capital has been used on tariffs and other issues, but something can be done to get the bulk of the budget through. It is ABSOLUTELY NECESSARY to get the extensions through. That would be a tax hike if they aren’t passed. So far, it looks like the administration has corralled the supporters and is on path to get something meaningful done.
• Reduced tariffs may make it easier for Powell to cut. We discussed this on Bloomberg TV yesterday morning (Academy is there for the first half hour of the show). We might get some inflationary pressures, but 10% or so across the board (assuming we get there with China) will see some cost be absorbed by the exporter, the importer, and the consumer. Not great, but a far cry from the trajectory we were on. Some economic slowdown, coupled with the general trend of inflation being under control, would allow Powell to cut. I think it would be easier to see this happening in the current environment, rather than if high levels of tariffs were still in place, coupled with a lot of uncertainty around trade policy! For now, that does seem to have been sent to the back of the line for this administration.

I remain concerned about the damage done to “The American Brand” and that the reprieves (and that is what they are, they are not big wins) give the rest of the world time to realign their interests so that they are less dependent on the U.S., which is apparently in the midst of a radical re-positioning. (Radical in the sense of large, not any other sense).

Peace through Strength, Build Baby Build, and Budget 2026 can take us to new all-time highs in stocks.

A lot is already priced into stocks, and bonds may start to feel pressure from a lack of focus on deficit reduction (at the longer end). With bond yields offering attractive levels in much of the world, I would expect foreigners (pension funds and insurance companies, more so than central banks) to reduce the relative weighting of U.S. bonds over time.

We have backed away from chaos and are back to “manageable” with a clearer path to growth, let’s hope it stays that way!

As the Trump administration seems to have pivoted (I believe it is real, because he is politically savvy), we could see a lot more positive announcements if he can maintain focus on the areas discussed and develop them further!

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