The implementation of Donald Trump's second term tariff policy could significantly impact the stock market. While the president has offered few details, experts predict a more targeted approach than broad tariffs. However, the potential impact on the economy, tax cuts, and deficit spending remains a concern.
The first week of Donald Trump 's second presidency offered little insight into his tariff plans, but the eventual implementation of these policies could significantly impact the stock market 's future trajectory. Jeffrey Schulze, head of economic and market strategy at ClearBridge Investments, highlighted in a commentary this week that ' policy sequencing ' could pose a significant challenge for investors moving forward.
If tariffs are enacted before the positive effects of tax cuts and deregulation become apparent, it could exert downward pressure on stocks, at least temporarily. 'Potential market headwinds may emerge more prominently before the realization of tailwinds. This progression would contrast with the first Trump presidency, where the benefits of deregulation and tax cuts were initially felt before giving way to 18 months of market volatility induced by tariffs,' Schulze stated.A chart presented by ClearBridge illustrated that the S&P 500 experienced a period of stagnation during the middle of Trump's first term, coinciding with heightened trade war headlines impacting the market. However, the analyst emphasized that tariffs are not unexpected this time around, and investors possess greater experience navigating Trump's economic policies. 'Importantly, tariffs should be less of a surprise to markets this time around, and robust fiscal support to the economy should outweigh the tariff drag in subsequent quarters,' Schulze wrote.The specific content of the tariff policy holds considerable weight, extending beyond mere clarity for investors. While Trump has hinted at the possibility of broad tariffs, many market participants anticipate a more targeted approach. 'The probability of 10%-20% across-the-board blanket tariffs, in our minds, looks extremely low,' Richard de Chazal, macro analyst at William Blair, stated in a note to clients. A more restrained tariff policy could be viewed favorably by the stock market, but it may also shift attention to the debt market. Trump has endorsed tariffs as a means of generating revenue, so any reduction in tariffs could lead to fewer tax cuts or increased deficit spending. 'The President cannot have it both ways when it comes to the tariff revenue generated. If tariffs are being used as one of the main 'pay-fors' to support tax cuts and other spending initiatives, then those tariffs need to stay in place and be more than just a short-term negotiating tool,' de Chazal asserted. On Friday, the three major market averages had all gained at least 2% for the week but were slightly down in midday trading
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