Markets Shrug Off Trump’s New Tariffs: ‘Just Noise’ for Investors

U.S. Markets have largely absorbed President Trump’s latest round of tariff increases, but a sense of cautious resilience prevails. The initial reaction was muted, with Asia stocks showing gains and safe-haven assets remaining stable. The 10-year U.S. Treasury yield remained relatively unchanged, while gold saw a slight increase of around 1%, suggesting investors aren’t yet convinced the situation poses a significant threat.

The Supreme Court’s recent decision striking down a broad range of tariffs imposed under the International Emergency Economic Powers Act (IEEPA) initially sparked concern. However, strategists suggest this ruling represents more of a procedural adjustment than a fundamental shift in the administration’s protectionist stance. The new tariffs, imposed under Section 122, temporarily replace the invalidated IEEPA levies, while existing duties under Sections 301 and 232 – targeting steel, autos, and China – remain in effect.

Investors have become accustomed to President Trump’s pattern of announcing aggressive trade measures, followed by a recalibration in response to market pressure or diplomatic efforts. This dynamic has been dubbed “TACO” – Trump Always Chickens Out – reflecting the expectation that initial hardline stances often soften. As Ed Yardeni, president of Yardeni Research, noted, the market has demonstrated “remarkable resilience in the face of what I call Trump tariff turmoil.”

Many analysts recommend a patient approach. Hugh Dive, chief investment officer at Atlas Funds Management, advises investors to “sit on hands and do nothing,” viewing the tariffs as temporary noise. Yardeni echoes this sentiment, suggesting a focus on earnings and the overall resilience of the economy. He also points to last year’s tax legislation as providing “fairly stimulative fiscal policy” that could facilitate offset any negative impact from the tariffs.

While a “sit still” strategy is favored by some, others suggest a more cautious approach. Steve Sosnick, chief strategist at Interactive Brokers, recommends potentially reducing U.S. Equity exposure in favor of global companies less vulnerable to U.S. Trade policies. He acknowledges the market’s growing tolerance for the President’s “capacity for anger and desire for revenge,” but warns that persistent uncertainty could hinder global trade and corporate planning.

Cryptocurrencies experienced a more pronounced reaction, with Bitcoin falling over 5%. Experts attribute this to Bitcoin’s status as a “high-beta liquidity asset” rather than a traditional safe haven. Despite this decline, analysts believe the broader market impact will be limited as long as positive investor sentiment prevails. Bitcoin has been in a steady decline since October, losing over 47% of its value since its peak.

With midterm elections on the horizon, Yardeni suggests trade policy may take a backseat. He anticipates that the tariff issue could be “buried” as the administration focuses on other priorities. However, the potential for further escalation remains, and investors should remain vigilant.

Q: What caused the recent market volatility?

A: The volatility stemmed from President Trump’s announcement of increased global tariffs following a Supreme Court ruling on previous levies.

Q: How did the Supreme Court ruling affect the tariffs?

A: The Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act, but the administration has implemented new tariffs under a different legal authority.

Q: What is the “TACO” effect?

A: “TACO” stands for “Trump Always Chickens Out,” referring to the pattern of the administration announcing aggressive tariffs followed by a softening of the stance.

Q: What should investors do in this environment?

A: Many analysts recommend a patient approach, focusing on earnings and the overall economy, or cautiously reducing exposure to U.S. Equities.