Trump 2.0 has lived up to expectations. No modern-day president has issued as many executive orders in their first 100 days as Trump, or had as many lawsuits filed against them!
Source: PACER
He came into office with a commitment to strengthen the economy, control immigration, address the US trade deficit, cut taxes, deregulate and boost oil and gas production. And in fairness, most of his announcements align with these objectives.
However, the order and execution has been chaotic, often without clear substantiation or methodology. This has created a perception that the policies aren’t carefully thought through, magnified by subsequent changes or back peddling. As a result, we’re seeing increased uncertainty and nervousness as to what the longer-term implications will be.
Soft v hard data
Since Trump’s inauguration there’s been a downturn in ‘soft data’. This includes things like consumer and business confidence indices, which tend to be more forward looking.
‘Hard data’ on the other hand, things like job growth, wages, service sector activity etc, have all remained reasonably resilient. Hard and soft data don’t tend to diverge for long, so the question is when will they converge and how quickly?
Source: HSBC Asset Management as at 2 May 2025
With the first estimate of US Q1 GDP growth sitting at -0.3%, the risk is that the hard data follows the soft data down, and quickly.
There are two main counter challenges to this though. First, the Q1 contraction was entirely driven by accelerated imports as businesses and consumers attempted to get ahead of tariffs. This suggests the negative drag from high import levels is unlikely to repeat. Second, sentiment could meaningfully improve as positive policies are announced around tax cuts, deregulation and interest rate cuts. Something the market isn’t paying much attention to right now.
Disapproval overtaking approval
The key catalyst of heightened market uncertainty has been the announcement of tariffs, especially reciprocal tariffs, on 2nd April. The infantile methodology behind the calculation of each country’s reciprocal tariff rate intensified this perception of ineptitude by business leaders and investors. Negotiation and trade deals are an assumed part of Trump’s strategy of ‘escalate to de-escalate’. But collateral damage has been done in the process. Not only internationally but also, and arguably more critically, domestically.
This increased policy uncertainty has driven a rise in business and consumer caution. Corporate investment plans have been stopped or cancelled, hiring freezes put in place and discretionary spending reined in. The risk is that this becomes a self-perpetuating downward cycle. Something that’s already beginning to be reflected in Trump’s approval rating in the chart below.
Source: RealClearPolitics and Alpine Macro as at 2 May 2025
This is important because if the Republicans lose meaningfully in the mid-terms, Trump effectively becomes a lame duck president, with growing risk of impeachment and legal proceedings.
Civil discontent could get ugly
The effects of penally high tariffs on China are now beginning to surface. International trade is slowing, port traffic contracting, haulage operations falling, product availability narrowing and prices rising. For low income groups, often employed in more cyclical industries where margins are tight, this paints a worrying outlook. The risk of redundancy rises, and cost of living increases as lower cost day-to-day items, especially those imported from China, become either more expensive or unavailable.
As a result, there’s a growing risk of rising public discontent, angst and protest against the Trump administration getting ugly. This could mean tax cuts will be increasingly ‘unfunded’ as planned expenditure cuts are rolled back to appease Republican politicians who are answerable to the electorate. The implication being that the fiscal deficit will climb higher, from an already absurd level, leading investors to further question the concept of US exceptionalism.
This is likely to underpin the shift seen in Q1 towards greater geographical diversification – something we advocate and are positioned for.
And the crazy thing about all this, is that it’s entirely self-inflicted. Yet no one should be especially surprised, as Trump made it clear on the campaign trail what he believes in and he is showing a dogged determination to see it through no matter the consequences. So as investors, we need to be prepared for that, which for us means staying diversified and disciplined with a bias towards quality. The first 100 days of Trump 2.0 have been busy, but with trade negotiations and tax cuts increasingly in the spotlight it’s the next 100 days that really matter for the medium to long term.
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This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
