Finance
Trump pivot on tariffs shows Wall Street still has a seat at his table
Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
With each passing day since President Donald Trump‘s sweeping tariff announcement last week, a growing sense of unease had begun to pervade Wall Street.
As stocks plunged and even the safe haven of U.S. Treasurys were selling off, investors, executives and analysts started to fret that a core assumption from the first Trump presidency may no longer apply.
Amid the market carnage, the world’s most powerful person showed that he had a greater tolerance for inflicting pain on investors than anyone had anticipated. Time after time, he and his deputies denied that the administration would back off from the highest American tariff regime in a century, sometimes inferring that Wall Street would have to suffer so that Main Street could thrive.
“It goes without saying that last week’s price action was shocking to see as the market has begun to rewrite completely its sense for what a second Trump presidency means for the economy,” said R. Scott Siefers, a Piper Sandler analyst, earlier this week.
So it came as a huge relief to investors when, minutes after 1 p.m. ET on Wednesday, Trump relented by rolling back the highest tariffs on most countries except China, sparking the biggest one-day stock rally for the S&P 500 since the depths of the 2008 financial crisis.
Despite a presidency in which Trump has tested the limits of executive power — bulldozing federal agencies and laying off thousands of government employees, for example — the episode shows that the market, and by proxy Wall Street statesmen like JPMorgan Chase CEO Jamie Dimon who can explain its gyrations, are still guardrails on the administration.
Later Wednesday afternoon, Trump told reporters that he pivoted after seeing how markets were reacting — getting “yippy,” in his words — and took to heart Dimon’s warning in a morning TV appearance that the policy was pushing the U.S. economy into recession.
Dimon’s appearance in a Fox news interview was planned more than a month ago and wasn’t a last-minute decision meant to sway the president, according to a person with knowledge of the JPMorgan CEO’s schedule.
Bond vigilantes
Of particular concern to Trump and his advisors was the fear that his tariff policy could incite a global financial crisis after yields on U.S. government bonds jumped, according to the New York Times, which cited people with knowledge of the president’s thinking.
“The stock market, bond market and capital markets are, to a degree, a governor on the actions that are taken,” said Mike Mayo, the Wells Fargo bank analyst. “You were hearing about parts of the bond market that were under stress, trades that were blowing up. You push so hard, but you don’t want it to break.”
Typically, investors turn to Treasurys in times of uncertainty, but the sell-off indicated that institutional or sovereign players were dumping holdings, leading to higher borrowing costs for the government, businesses and consumers. That could’ve forced the Federal Reserve to intervene, as it has in previous crises, by slashing rates or acting as buyer of last resort for government bonds.
“The bond market was anticipating a real crisis,” Ed Yardeni, the veteran markets analyst, told CNBC’s Scott Wapner on Wednesday.
Yardeni said it was the “bond vigilantes” that got Trump’s attention; the term refers to the idea that investors can act as a type of enforcer on government behavior viewed as making it less likely they’ll get repaid.
Amid the market churn, Wall Street executives had reportedly worried that they didn’t have the influence they did under the first Trump administration, when ex-Goldman partners including Steven Mnuchin and Gary Cohn could be relied upon.
But this last week also showed investors that, in his mission to remake the global order of the past century, Trump is willing to take his adversarial approach with trading partners and the larger economy to the knife’s edge, which only invites more volatility.
‘Chaos discount’
Banks, closely watched for the central role they play in lending to corporations and consumers, entered the year with great enthusiasm after Trump’s election.
The setup was as promising as it had been in decades, according to Mayo and other analysts: A strengthening economy would help boost loan demand, while lower interest rates, deregulation and the return of deals activity including mergers and IPO listings would only add fuel to the fire.
Instead, by the last weekend, bank stocks were in a bear market, having given up all their gains since the election, on fears that Trump was steering the economy to recession. Amid the tumult, it’s likely that reports will show that deal-making slowed as corporate leaders adopt a wait-and-see attitude.
“The chaos discount, we call it,” said Brian Foran, an analyst at Truist bank.
Foran and other analysts said the Trump factor made it difficult to forecast whether the economy was heading for recession, which banks would be winners and losers in a trade war and, therefore, how much they should be worth.
Investors will next focus on JPMorgan, which kicks off the first-quarter earnings season on Friday. They will likely press Dimon and other CEOs about the health of the economy and how consumers and businesses are faring during tariff negotiations.
Wednesday’s reprieve could prove short lived. The day after Trump’s announcement and the historic rally, markets continued to decline. There remains a trade dispute between the world’s two largest economies, each with their own needs and vulnerabilities, and an unclear path to compromise. And universal tariffs of 10% are still in effect.
“We got close, and that’s a very uncomfortable place to be,” Mohamed El-Erian, chief economic advisor of Allianz, the Munich-based asset manager, said Wednesday on CNBC, referring to a crisis in which the Fed would need to step in.
“We don’t want to get there again,” he said. “The more you get to that point repeatedly, the higher the risk that you’re going to cross it.”
Finance
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Egg prices keep soaring, but inflation is moving in the right direction. (iStock)
Consumer prices fell 0.1% in March, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS). This is the first monthly drop since July 2022.
Annual inflation increased 2.4% compared to a 2.8% increase registered in February. Core inflation, which excludes volatile energy and food prices, grew at a pace of 2.8% over the last year, the smallest 12-month increase since March 2021. A decline of 6.3% in gas prices more than offset increases in the indexes for electricity and natural gas. Food, however, rose 0.4% in March. The meats, poultry, fish and eggs index rose 7.9% over the last 12 months and the price of eggs alone jumped 60.4%.
Inflation continues to move towards the Federal Reserve’s 2% target rate. Still, the impact of President Donald Trump’s implementation of new tariff measures could derail this progress and hinder economic growth, according to Jim Baird, Plante Moran Financial Advisors’ chief investment officer.
“As consumers brace for the impact of tariffs on prices on a host of staples and discretionary goods, there’s considerable uncertainty on what that near-term magnitude of the impact will be for growth and inflation, although the direction for each is clearer,” Baird said. “That’s sent economists scrambling to update their forecasts to lower growth and increase expected inflation for the duration of the year.”
Despite concerns about the effects of President Trump’s tariffs, the Fed continues to hold interest rates steady, and it’s not expected to make any significant changes soon, including a potential rate cut. While tariffs could lead to higher inflation and slower economic growth, the Fed is waiting for more clarity on the full impact of these policies before deciding on any course of action.
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Recession risks increasing
President Trump’s tariffs are also contributing to an increased risk of recession. Several major financial institutions, including Goldman Sachs and J.P. Morgan, have raised their recession probabilities. According to Baird, part of the problem is that as prices rise due to tariffs, consumers may decide to curb their spending.
“Sentiment has soured in recent months, and there are already signs of not only a more cautious mood but more constrained spending,” Baird said. “Prices may rise, but that doesn’t mean that consumers will pay any price for any product. Some may grumble but continue to spend, but many are much more likely to trade down to cheaper alternatives or delay discretionary purchases.
“That reality raises the probability of a more notable slowdown in the pace of the economy, with the risk of recession also rising,” Baird continued.
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CALIFORNIA’S HOMEOWNERS INSURANCE INDUSTRY FACES ROUGH ROAD AHEAD AS WILDFIRES CONTINUE
Spring homebuying season looks promising
March shelter inflation data showed it dropped to 4.0% from 4.2% in February. That’s good news since shelter inflation has been a major force in keeping inflation elevated in recent years and could help move the needle on interest rates.
Mortgage rates continue to trend down, remaining under 7% for the twelfth consecutive week and could boost spring sales, according to Freddie Mac Chief Economist Sam Khater.
“As purchase applications continue to climb, the spring homebuying season is shaping up to look more favorable than last year,” Khater said.
The average 30-year fixed-rate mortgage was 6.62% for the week ending April 10, according to Freddie Mac’s latest Primary Mortgage Market Survey. That’s a decrease from the previous week, when it averaged 6.64% and lower than the 6.88% it was a year ago.
“Unfortunately, inflation remains painfully stubborn, well above the Fed’s 2% target for lowering rates,” said Gabe Abshire, Move Concierge CEO. “Considering the housing sector has lower exposure to the current global trade environment, it would be helpful for the Fed to lower rates and boost the Spring and Summer home buying market.”
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A global trade slowdown tied to U.S. tariffs will likely create a more challenging environment for bond fund managers, according to financial futurist Dave Nadig.
“All of these capital holding requirements that led to buying U.S. Treasurys are kind of unwinding at the same time,” the former ETF.com CEO told CNBC’s “ETF Edge” on Wednesday. “So, the traditional math of things are bad for stocks, [and] everybody is going to buy bond just isn’t working out this time because the kind of shock we’re seeing is one we’ve never seen before.”
The benchmark 10-year Treasury Note yield increased to 4.4% on Thursday. The yield is up more than 10 percent just this week. Last Friday, it touched 3.86%.
Nadig thinks slowing trade will continue to impact market activity.
“When you have less trade, you need to finance less trade,” he said. “Historically, people have needed to finance dollars. That’s why every country in the world buys U.S. Treasurys. It helps them manage their international trade with the United States. So, if we’re slowing down the amount of international trade, we should expect in aggregate the holdings of bonds to probably come down.”
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