The stock market has been a rollercoaster ride lately, especially with President Trump’s trade policies causing uncertainty among investors. Trump’s bold proposals, such as blanket tariffs and threats to fire the Chairman of the Federal Reserve, have often been seen as bluffs by market participants. This has led to the emergence of the so-called “TACO trade” – short for “Trump always chickens out” – where investors buy the dip in anticipation of the president backing down.
However, Ben Inker, co-head of asset allocation at GMO, warns that this approach may backfire. Without financial markets to check Trump’s more extreme trade policies, the president may be emboldened to escalate the trade war further. Inker points out that the lack of a strong reaction to tariffs could give Trump little incentive to back off from his aggressive stance.
Recent developments have shown Trump ramping up the trade war by threatening tariffs on countries like Japan, South Korea, Brazil, and Canada. Despite these threats, the reaction from investors has been muted compared to previous sell-offs in the market. Inker notes that Trump’s recent announcement of 50% tariffs on Brazil signals a more aggressive stance, indicating that he may not back down without pressure from financial markets.
Investors have been overlooking downside risks, with the S&P 500 and Nasdaq hitting all-time highs recently. Inker believes that the benchmark index is significantly overvalued, possibly by as much as 40%. He suggests that deep value stocks and developed-market stocks outside of the US could present more attractive opportunities for investors.
Overall, the current market environment is characterized by uncertainty and high valuations. Investors need to be cautious and consider the potential impact of Trump’s trade policies on their portfolios. Keeping a close eye on market developments and staying informed about the latest news is crucial in navigating these turbulent times.
For more insights on the stock market and Trump’s trade policies, you can read the original article on Business Insider.
