The R-word

So, yeah, we were wrong.

Bay Street (like the brains on Wall Street) was convinced Trump 2.0 would do to the stock market what 1.0 managed to pull off. A sustained bull market.

After all, how could it be otherwise? The orange guy said he would orchestrate a giant cut to corporate taxes. He would drop inflation, and taxes, and interest rates. He would adopt an America-First strategy, repatriate factories, increase unemployment, reduce the price of eggs, slash regulations and usher in a new ‘golden age’ for America. People would have more money because taxation of tips, overtime and retirement benefits would be ended.

Voila. The second snortin’ Trump Trade arrived as he won victory in November and investors looked forward to the post-inauguration party.

Then, oops. It all changed. And while there were green arrows (for a change) on Friday’s markets, the stock carnage of the last eight weeks has been profound. Disappointment led to shock, then fear. The contrast with Trump’s first term has been stunning.

From enabler to destroyer: Trump sinks markets

Source: New York Times

The mighty S&P entered correction territory (down 10% from its recent high) on Thursday. The small-business-sensitive Russell 2000 has tumbled almost 20%. Tech stocks – including the Magnificent 7 – have been creamed. Bay Street has done okay – down just 2% so far this year, and bond ETFs have kept their little noses above the waves. But while investors with a B&D portfolio are staying dry on the shore, risk-on equity investors have been taking on serious water.

Crypto is down. Gold is up. Canadian interest rates are on the way down further. Real estate is slowly sinking. Layoffs have started. The Bay is in creditor protection. March break is a bust in Florida this year, we’re told. Flights from Canada to the States have dropped off by 40%.

Now the R-word is being trotted out again. In fact, Canada could be in a recession by the summer. Amazingly, so could America.

“There’s denial that Trump’s actions will engender a global recession,” writes analyst Ed Pennock. “So, the Fed [US central bank] will fiddle. A town hall meeting in North Carolina had their Republican member booed off the stage. Another opinion poll shows that 60% don’t agree with Trump’s handling of Ukraine. 28% don’t seem to have conviction. Only 12% approve… All the sector ETFs are down for the year. On average, down 3%. 6% below their 50-DMA. Two standard deviations below their 50-DMA. We could easily have a rally.  But unless the chaos stops, we don’t trust it.”

So, why is this happening?

Uncertainty is the key ingredient. Nobody knows what tariffs will be in effect tomorrow, let alone three weeks from now. The American president’s attack on historic allies (now he’s pissing off the French with a 200% tax on wines) has stunned the West. It’s chaos. Unpredictable. An untradable market and an environment in which corps will not be investing, building or taking risk. The inevitability is less GDP generated, fewer people employed and a retrenchment.

At the same time, the US government is being dismantled. Hundreds of thousands of federal employees are being dismissed, leading to questions about service levels and continuity. Reduced government spending is a factor. So is the image of America as it throws overboard millions of global residents who were being supported, treated, healed or nourished by American generosity.

Tariffs on foreign imports, like lumber for houses in LA, make life in the US more costly. Retaliatory tariffs on American exports, and a boycott of Disneyland, put Americans out of work, too. If Canadian spending inside the States drops by just 10%, then 14,000 jobs are lost there.

Of course, there’s the social upheaval, too. Big universities in the States are being gutted of funding for being too woke. Measles is back, thanks to the anti-vax knuckle-draggers now in positions of influence. Deportations continue, complete with the degrading theatrics of shackles and cargo planes. And the world’s richest man, who took $38 billion in government contracts, guts Washington agencies of low-paid workers, abruptly cancels foreign aid that will raise global tuberculosis deaths an estimated 30% and turns the White House driveway into a showroom for his car company.

No wonder investors have pulled in their horns. These are unique times. Equity cowboys have been trumped and dumped.

And the world wonders. How can this president last?

About the picture: “We appreciate your daily writings and have learned a lot over the many years following your blog,” writes Edward. “This is Samara (now 6 years old), this year she is wintering over in coastal Georgia, who knows about next year given the current upheaval. This was taken during her morning walk to the local park, she is more concerned about chasing an orange ball than whatever the orange guy is doing.”

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Source: https://www.greaterfool.ca/2025/03/14/the-r-word-2/