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Your Guide to What Trump’s Second Season Means Washington, Business and World
The author is Jeffries’ Chief Market Strategist
It was shocking to see how dark it has become for so many investment experts over the past two months. Countless clients, colleagues and competitors could not separate the obstruction of American political events from fiduciary responsibility.
These people, after being radicalised by the Macro Intelligentsia mob, spent their days predicting the failure of US policy, rather than focusing on generating capital profits. Emotions should never be part of the trading process. Ask Warren Buffett, King of Kings, Investment. “People have feelings, but you need to check at the door when you invest,” the investor said at this year’s Berkshire Hathaway Annual Meeting.
For now, we’re in a frenzy with too many investors. They view the risks of empty shelves at Target, the return to 1970s-style stagflation, the end of dollar control, the end of the Federal Reserve’s independence, and the latest concerns of the day, the collapse of the bond market due to debt.
I have spent the past few months trying to push back all the negativity that has been politically charged. While others issued forecasts of a recession and summoned the end of US exceptionalism as a result of trade tensions, I argued that US President Donald Trump’s tariff announcement should be seen through the lens of game theory and its development in negotiations.
Similarly, we believe that bond market stress can be countered through operations like the “Treasury Twisting” to curb long-term yields by turning funds into short-term debt. And the bond and equity rally posted the 1985 Plaza Accord that led to a dollar devaluation, and could serve as a guide to how future US macroeconomic trends will be actively unfolding in the market.
It is clear that we are far from seeing the end of our exceptionalism. But on many days I feel like Kevin Bacon’s character in the parade scene at the end of Animal House, screaming, “Calm down, everything’s going well!”
In the positive aspects of all hysteria, this highly charged market offers some excellent trading opportunities. Look at the 20% rally on the S&P 500 from its April low, or a 33% increase in the 7 epic tech stocks.
In fact, while everyone appears to be on track after the market turmoil of the past few months, skeptics are still worriedly searching for a market retreat to justify their panicked call to throw away their high-risk assets at low April. Sadly, we are sure we have never seen the end of a nervous denier driving the market narrative temporarily. The key to long-term success is adjusting all that short-term nonsense when you start to overwhelm your price action.
The fact that so many people are stuck in this fateful loop from now on continues to boost my confidence in risk parity trading, which seeks to diversify exposure across bonds and stocks. I started this year with the idea that while stocks can easily record double-digit total revenue, short-term Treasury yields will drop by at least 1 percentage point. Given the extreme bearish position in both the stock and bond markets over the past few months, I am far more confident in this outlook now.
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But even without this, the basic setup is bright and the bullish trend that pushed the market in the 1980s and 1990s could return to nostalgic. The business-friendly Ronald Reagan-style policy on low taxes and less regulations, and the move towards a “highly competitive revaluation” of dollars like the Plaza Accord, creates a serious atmosphere of the 1980s. And the AI revolution is certainly abandoning the Goldilocks-style internet revolution with a 1990s vibe.
Is the 2020s moving forward to become “exceptional” descendants of the 1980s and 1990s total of fired boule markets? That’s certainly how it feels. Expected US revenue – With growth per revenue of around 15% in 2025, it is not a problem that the S&P 500 index will rise from the current level to a level of 7,000 from around the 6,000 level and reach a price revenue of around 25 times.
In short, cases of stronger disinflation growth led by 80’s style deregulation and 90’s style productivity growth are not fully recognized in current market valuations. The deniers moistened their economic outlook with their politically inspired darkness. Instead of stagflation, you can have the opposite. And for those who instinctively reject my analysis, I should be wary of making the same mistakes that many people made in April.
