Markets so unfazed by tariffs that it’s making Trump bolder

‘I think the tariffs have been very well-received. The stock market hit a new high today.’ Trump said.

To Donald Trump, the rallying stock market is evidence that Wall Street likes tariffs. But investors say they’re just counting on the US president to back down.

With the S&P 500 notching records despite promises that more tariffs are coming to everyone from Canada to Brazil to Algeria, Trump told NBC in an interview: “I think the tariffs have been very well-received. The stock market hit a new high today.”

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The view among traders and strategists is largely the opposite. They don’t expect tariffs to come into full force, at least not as severely as Trump has threatened. That confidence that Trump will U-turn, just as he did after Liberation Day, and a belief that this week’s headlines are simply a negotiating ploy are why markets have shrugged off the latest escalation in the trade war.

“Trump often opens negotiations with maximalist rhetoric, but policy outcomes tend to be more moderated,” said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP. “The market’s relatively muted reaction reflects this skepticism.”

With Trump seeing markets endorse his economic policies, it raises the question of why would he retreat. Back in April, the pause on tariffs came in the midst of soaring Treasury yields and a selloff that sent the Nasdaq 100 into a bear market.

One sign that traders are less sensitive to tariffs is the slump in volatility metrics. The VIX Index this week sank to a February low and a similar measure for the Treasury market fell to the lowest since 2022.

To some, it’s a red flag that investors are overly exuberant. At an event in Dublin, JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said markets are growing complacent, and that the Federal Reserve might even have to raise interest rates.

S&P 500 futures slid 0.6% in early trading on Friday, indicating a mild pullback after the index closed at a record. Trump also told NBC News on Thursday that he’s also eyeing blanket tariffs of 15% to 20% on most trading partners.

Panmure Liberum strategist Joachim Klement says investors are miscalculating the risks from Trump’s policies. He estimates that even if tariffs stay at current levels, it will worsen inflation and hurt the economy.

“This will inevitably hit corporate profit margins and revenue growth,” he said.

For now, there’s not much sense of concern in the price action, with speculative trades like Bitcoin and AI stocks continue to soar. Client feedback doesn’t indicate any worry about the economy or stock valuations, according to Bank of America Corp. strategist Michael Hartnett.

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“Markets have already priced in perfection — a soft landing and a clean unwind of tariff risks — which feels wildly out of sync with the real-world picture,” said Hebe Chen, an analyst at Vantage Markets in Sydney. “A pullback is very much on the table.”

Even US Treasury Secretary Scott Bessent warned against anyone not taking Trump’s tariffs plan seriously. At a conference in Idaho on Wednesday,” he objected to the notion of the TACO trade, an acronym coined by a Financial Times columnist that stands for “Trump Always Chickens Out” in the face of market losses, according to one person in the room.

Instead, he said Trump’s strategy is more akin to FAFO, an acronym popular on social media that stands for “F—- Around and Find Out,” the person said.

Still, given the confusing twists and turns of Trump’s tariffs, many investors said they are reluctant to make any decisions based on his social media posts. And with the US earnings season starting next week, companies might give a clearer picture on how the economy is faring.

“Investors should not try to trade every single tweet,” said Marko Papic, chief strategist of GeoMacro at BCA Research. “The back and forth with tariffs is designed to accelerate the deals and ensure that Trump can claim victories along the way.”

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