Not in the cards: Why some suspect stable trade may not follow Trump's tariff deals

Analysts caution that despite recent trade deals and market optimism, significant uncertainty persists around U.S. tariff policy. Piper Sandler highlights that most April-announced tariffs are now in effect, while ongoing legal challenges to the President's IEEPA authority could nullify existing agreements, and announced deals lack confirmed details or face partner disagreements. This suggests markets may be underpricing the broader tariff risk, with potential GDP impacts and the inherent unpredictability of the 'Trump factor' adding further instability.

Analysis

A significant divergence exists between current equity market sentiment and underlying U.S. trade policy risks, according to analysis from firms like Piper Sandler and Raymond James. While markets have reached record highs, pricing out recession risk to a 10% probability from 70% in May on the belief that President Trump will moderate his stance (the 'TACO trade'), the reality is that most tariffs announced in April are now in effect. Key sources of instability persist, including significant legal challenges to the President's authority under the International Emergency Economic Powers Act (IEEPA), with a potential Supreme Court ruling within 10 months that could nullify existing deals. Furthermore, recently announced trade agreements with nations like Indonesia, the Philippines, and the European Union lack confirmed details, face disputes from foreign officials, and are considered potentially unstable. With no final agreements with key partners like China, Canada, and Mexico, and JPMorgan projecting a potential 1% hit to GDP from tariffs, the consensus analyst view is that markets have 'completely priced out' the broader tariff risk, creating a fragile environment susceptible to unpredictable policy shifts.

Key Decisions for Investors

• Investors should reassess portfolio exposure to trade-sensitive sectors, as market optimism appears to be misaligned with the high probability of continued tariff-related instability.
• Monitor the legal challenges to the President's IEEPA authority closely, as a Supreme Court ruling against it could abruptly invalidate existing trade deals and trigger significant market volatility.
• Treat official announcements of new trade agreements with skepticism until concrete details are confirmed by all parties, as current deals are described as unsettled and potentially unreliable.
• Consider positions or strategies that hedge against a reversal in market sentiment, given the analysis that broader tariff risk is underpriced and policy remains highly unpredictable.