What to expect from the “liberation day”

good morning. The stocks, especially the tech stocks, were an ugly morning yesterday, but they spun in the afternoon. Biotechnology stocks, particularly Moderna, Charles River Lab and other vaccine makers, were hit hardest after the top Food and Drug Administration officials resigned over the weekend. Email: robert.armstrong@ft.com and aiden.reiter@ft.com.

Release date

Tomorrow is President Trump’s “Liberation Day.” At that moment, it is said that he will be making an announcement about the entities of his trade policy, particularly mutual tariffs. Wall Street research contacts on this topic have been washed away in Hedged’s inbox, creating a rather clear set of consensus expectations despite many stories of uncertainty. There are four points of a non-extensive but universal agreement (note that much of the research was written before Trump’s weekend comment that “essentially all” US trading partners will be hit by tariffs):

The tariff program announced by Trump leaves an average tax of 10-20% on US trading partners, with most commentators placing numbers in the lower half of that range. Many charts are floating around comparing these numbers to historical levels. This comes from David Seif of Nomura:

Immediate or near-imitation tariffs will be announced in a group of countries with the largest trade imbalance with the United States (China, EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Italy, Switzerland, Malaysia). These are imposed using some or other forms of executive privilege.

In addition to automobile tariffs, the implementation of sector tariffs will be pushed until later, waiting for further investigation by the administration. However, tariffs in the semiconductor, pharmaceutical, wood and copper sectors are all ultimately expected.

Many on Wall Street are hoping to signal the potential softening of tariffs in Mexico and Canada, and will likely come in the form of confirmation that goods that are “compliant” under the three-country USMCA trade agreements will maintain tariffs.

Wall Street, on the other hand, doesn’t know what he thinks about the two important points. It remains unknown which duties “study” each other and only the highest duties apply. And the severity of treatment for non-tariff barriers (such as quotas, licensing restrictions, and other taxes) is all unknown.

As far as the market impact of tariffs is concerned, the consensus makes it very clear that it is negative for stocks (reducing revenue) and positive for dollars (“relief valves” for large changes in relative prices). And many consider it to be positive about bond prices. This is what Morgan Stanley’s Head of American Policy Studies Michael Zezath summed up things yesterday.

The most beneficial outcome for bonds compared to stocks is the result of investors receiving high clarity on substantial tariff hikes. This not only appears to be an increase in tariffs to explain foreign sales taxes and non-tariff barriers beyond tariff differences, but also clearly shows that bars are high for negotiations with trading partners to mitigate new actions. Here, according to our economists, there are already clear drawbacks to the following US growth expectations:

Are all this prices already available? Most analysts say “no.” The key issue is that no one seems to believe much of what Trump says, but at some point he actually does something and continues.

Trump likes uncertainty. Because he negotiates leverage by removing the enemy from balance and paying attention to himself. This will not change anytime soon. If policy uncertainty is reduced on Wednesday, Hedged hopes it will prove temporary.

The wealthy consumer

The rich are the engine of US consumption. According to Moody’s analysis, the top 10% of households in the income distribution accounted for half of consumer spending last year, a massive increase from a few years ago, says Mark Zandy, the chief economist in the US.

Their share of spending has been steadily rising over the years, but they took off significantly after the pandemic due to a surge in stock prices and home values. (expensive) homes and stocks are disproportionately owned by the wealthy ones. It led to the effects of powerful wealth. If people see what they owe, in other words, what rises in comparison to wealth, they tend to be more aggressive spenders.

If asset inflation fueled the post-pandemic consumption boom, could the market not fall? If the rich recession recession, could the recession be a recession?

We received some soft indicators that wealthy people might ease their spending. The University of Michigan Consumer Sentiment Survey showed that it sinks into the top third of earners faster than other cohorts.

Wealthy households are also exposed to the stock market. So, a recent revision. According to fourth quarter data from the Federal Reserve, the top 10% of households by U.S. wealth accounts for 87% of all shares owned. Only the top 0.1% own 23%. Since the week of Donald Trump’s election in November, the top 10% of the wealthiest US households have wiped out 2.7 tons of wealth in the market compared to $6560 billion in the bottom 90%. Yesterday, the latest PCE data noted that individuals showed a softer increase in consumption than expected. The wealthy households were able to explain much of it.

However, the impact should not be exaggerated. The revision concluded the wealthy securities accounts, but destroyed a relatively small portion of the total assets. 2.4% in the top 10% and 3% in the top 0.1%. And that comes after years of rampage stock market returns and rising home prices. Even after the revision, 20% of earners still have a lot of liquid assets, according to Samuel Tomb, a US economist at Pantheon Macroeconomics.

In the restaurant and hotel sector, we have not seen a recession in two areas of consumption carried by the rich. And historically, according to the grave, a big stock market fall is not always pulling back the highest-paid consumers.

The top 20% by revenue continued to increase spending despite (a) a sharp decline in the S&P 500 total revenue index of 12% and 22% and a sharp decline in the respective total revenue indexes for 2022 (-18%).

Wealthy households may also be able to look into inflation from Trump’s tariffs, as they did during the 2022 inflation surge. It is also unlikely to be adopted in sectors that are most likely to be affected by tariffs, such as manufacturing, home construction and household electronics.

Pullbacks by wealthy consumers will be of great concern to the economy. That may happen if the market lowers another big foot. But for now, a rich look is set to keep spending.

(writer)

Correction

In a letter yesterday, Core PCE said it rose 4% a month. It was an error – it was 0.4%, which is the highest monthly rise since January 2024. I apologize.

One good read

Openai, less communication than open.

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