Deal or No Deal for Another 90 Days We got a deal! Or rather an agreement to walk back from the edge of an effective trade embargo for 90 days. For the time being, this has been good for the highly news-reactive equity market – the S&P 500 is up year to date. But has anything changed fundamentally?
The tide of geoeconomics had already turned before President Trump’s administration. Foreign central banks responded to the weaponization of the SWIFT network and seizure of Russian dollar-denominated assets by paring their reserve holdings of US Treasuries in favor of gold and US mega cap equities.
The combination of DeepSeek in January, a potentially militarized European fiscal policy, and the tariff saga have reminded investors that ex-US markets may have equally compelling narratives at more attractive prices. The medium-term outlook is a continued weaking of the US dollar and foreign outflows from US equities, assuming no major positive externalities or immediate productivity booms from AI. This movement has a floor, however. The world is not going to abandon – yet – the US dollar as the clearing currency for foreign trade, which limits potential downside. Further, if the US pursues a coherent industrial policy, there will be winners.
In the short term, equities can ride fiscal stimulus as the administration shifts its focus to tax policy and deregulation.
I think it’s still important to remember that there’s a 30% tariff on China and a 10% baseline on the rest of the world. The tariffs, a weaker dollar, and deficit spending can all contribute to inflation. This past week, the Producer Price Index (PPI) came in with a surprise negative reading, driven by a decrease in services. Firms, wary of sacrificing market share on a shifting policy landscape, accepted lower prices. However, with increasing certainty in the baseline tariff levels, companies will begin passing cost margins on to end consumers.
Steven J. Wagner, Investment Adviser
Bray Farm Income Advisory LLC
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