The End of Cycle President
Let me be the first and last financial pundit to explain that what Trump is doing right now is ending the 15 year super cycle that started at the recession lows of 2010.
There was a time in most of U.S. history when cutting taxes at this point of the cycle would have been considered economically suicidal. That was before 2008. After the GFC, the U.S. entered a 10 year 0% interest rate regime that convinced economists far and wide that "Japanification" was the new normal. Then Trump came along in 2016 and promised massive tax cuts, so what did the Fed do? They started raising interest rates for the first time in ten years. This time around, we are to believe that Trump will raise tariffs AND cut taxes while the Fed lowers rates. This disinengenuous fantasy was imploded at the start of 2025 with a hotter than expected jobs report. However, instead of causing a RISK OFF re-positioning among investors, it somehow catalyzed a melt-up in large cap growth stocks. The very type of stocks that DON'T do well under rate hikes.
Today we got another jobs report which on the headline number was weaker than expected, but overall including revisions was much hotter than expected. Wages in particular far exceeded expectations and the unemployment rate actually fell. Later in the morning we learned that inflation expecations among consumers are now rising due to the impending tariffs. So to cap it off, this afternoon just after meeting with the Prime Minister of Japan, Trump announced that more tariffs are coming next week:
"President Donald Trump on Friday said he plans to announce reciprocal tariffs next week without specifying which countries would be the target."
This past week, Trump levied tariffs on Canada, Mexico, and China - giving 30 day reprieve to Canada and Mexico. Which leaves Europe and Japan for next week's trade war.
You can be certain of one thing which is that Wall Street has been telling their big clients that large cap growth can't be owned anymore. Which leaves retail investors having gone ALL IN at the end of the cycle.
As usual.
"Mom-and-pop investor sentiment has reached the highest level on record, surpassing what was seen during the meme-stock mania in 2021"
"Not surprisingly, about 70 per cent inflows went to Magnificent 7 stocks on Tuesday, the largest on record"
