Tick-Tock

Tariff concerns went out the window as geopolitical turmoil took center stage. That may now be reversing. In just 11 days (July 9), the 90-day pause on reciprocal tariffs—which was the catalyst for the second quarter rally—theoretically ends. As you may recall, Liberation Day 1.0 was very unpleasant, will Liberation Day 2.0 be different?

Treasury Secretary Bessent has already left the door open to extending the pause, but we suspect it would be a mistake to assume that the pause will be extended for everyone. Bessent’s comments implied that we will not have to wait until July 9 to find out what happens; the next steps will become clearer between now and then. In light of the April stock market swoon, there is considerable pressure on the Trump administration to deliver meaningful progress on trade deals with key partners such as Canada, Mexico, and the EU. On Friday, Treasury Secretary Bessent said the agenda for trade agreements could be completed by Labor Day. That’s an aggressive timeline, considering that essentially no significant deals have been finalized yet, but it could also lead to an extension of the tariff pause for those countries that are cooperating.

A few weeks ago, Commerce Secretary Lutnick promised ‘deal after deal’ in a CNBC interview. That created heightened expectations and set the stock market up for potential disappointment if the promised deals failed to materialize. This week, stories began to surface questioning whether any trade deals were actually close to consummation. Those doubts were amplified on Friday when the U.S. terminated all trade discussions with Canada—the first key trading partner to fall short. The onerous tariffs that are expected to follow appear to be the first shot across the bow in the carrot-and-stick strategy we have come to expect from President Trump, and this development quickly took the wind out of the stock market’s sails.

Here is how we view the possible trade outcomes:

Best Case: Several significant trade deals are announced between now and July 9, and other countries are granted extensions. There may be a few tariff increases, but only with less important trading partners. Market reaction is very positive.

Most Likely Case: One or two trade deals are announced, but not with key trading partners. The pause is extended for those negotiating in good faith, while for those not negotiating, tariffs are immediately raised—the carrot and the stick. This outcome could move markets either way depending on who makes the deals. If the deals are with key trading partners, that would likely be interpreted positively. If the deals are with minor trading partners, we’d expect the stock market reaction to be more negative as the Trump strategy remains confusing and tariff fears are renewed.

Worst Case: No trade deals are announced, but the pause is extended for those negotiating in good faith. For those not negotiating, tariffs are immediately raised. We’d expect the market reaction to be poor. No deals imply that Trump’s strategy is clearly not working, and tariff fears become ‘more real.’

When the clock strikes midnight on July 9, what happens will be anyone’s guess. It could be a non-event, with additional deadline extensions still possible. It might be a day of celebration, as long-promised trade deals finally materialize. Or, it could also be a day when the hammer comes down and high tariffs are simply imposed. In the Trump era, direction is not always clear, and that makes the range of possible outcomes exceptionally wide. But if the market reacts poorly—as it did in April—President Trump again has ample incentive to engineer a change in direction.

Have a great week!

 

What We’re Reading

 

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All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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By: Adam