Markets Brace for Uncertainty Amid Tariffs, Tax Policy, and Deficit Concerns

The only dependable piece of news is change.

Last week, it was an announcement that Apple would face 25% tariffs on iPhones and the EU would face tariffs of 50%. The market reacted with a swift sell-off that moderated during the day but still resulted in losses for both the day and the week.

When I wake up in the morning, I never know what news awaits. I thought we had a break in the mornings because President Trump sleeps late — but he also stays up late and posts policy on the internet as opposed to issuing official announcements. I have a feeling his advisers have no idea what they’re waking up to each day. They’re the ones left to answer questions to which they obviously have no answers.

Why? Because there is no rhyme or reason.

It appears that where the rubber meets the road regarding tariffs is July, when the 90-day moratorium declared in April ends. What can we depend on in terms of future policy decisions? Nothing.

Now that Congress has passed the budget, what are we looking at? Basically, the bill continues the Tax Cut and Jobs Act (TCJA) of 2017, avoiding tax increases that would have resulted from not including these now-permanent changes — assuming the Senate agrees (which is unlikely to agree with all). Non-partisan analyses focused on the projected increase in the deficit over 10 years — more than $4 trillion.

The bond market reacted to these figures, including a downgrade in the credit rating of U.S. Treasury and Agency debt based on the proposals in the bill.

The headline on CNBC read:
"Most tax cuts in the bill go to top-earning households."

This was another major issue because the tax benefits were being funded by changing the rules for Medicaid, student loans, and electric vehicle purchases. Some would call this a transfer of wealth to higher-income households.

A major contributor to this was the raising of the State and Local Tax (SALT) caps from $10,000 to $40,000. Of course, we in California should benefit from this; however, the cost will be borne by our children.

Monday’s markets reflected genuine concern about the projected deficits — measured over 10 years at 25% of the federal budget. The interest rate on the 30-year U.S. Treasury bond reached over 5% last week. I hold my breath as markets still seem to see the glass half full, but any day now could bring a reckoning. We just don’t know when.

GDP numbers, inflation numbers, cost increases, failure to close trade deals…?

For insights on how to stay grounded amid market volatility, see our earlier post: In Uncertain Times, Planning is Power.