Joshua Jamner, Senior Investment Strategy Analyst at ClearBridge Investments part of Franklin Templeton, comments on the market implications of Trump’s tariffs. Specifically, he comments on how these tariffs will impact stocks and bonds.
“Tariffs are likely to add upward pressure to inflation and be a headwind to economic growth at the margin, an unfavorable combination for risk assets broadly. In the near term, this risk remains unknown, which could weigh on markets, as the 25% tariffs on Mexican and Canadian imports were not widely expected to come into effect and many believe they are likely to be at least partially removed (lower rate and/or key exemptions granted) in the coming weeks. As the trade war unfolds, investors will re-price tariff expectations, which could lead to ongoing market volatility.
“The largest companies in the benchmark have an outsized share of revenues derived from overseas, making them potentially more vulnerable to trade war escalations. For example, the S&P 500 equal-weight index was down by 0.7% less than the cap weighted version during Monday’s tariff-driven sell-off.
“At this juncture, the trade war sell-off may represent an opportunity for long-term investors. Investor sentiment has reached an extreme as evidenced by the AAII Bull-Bear spread notching one of the 10 most bearish readings in its almost 40-year history last week. Historically, the S&P 500 has delivered a +13.6% price return on average over the subsequent 12 months from bottom-decile readings in the AAII Bull-Bear spread, as is the case today.”
