Moneycontrol Pro Panorama| Is the worst behind us?

The sight of US negotiators returning to the table has helped cool tempers, and markets have responded with relief.

Dear Reader,

For all his bluster, President Donald Trump has a deep fascination with financial markets — no more so than the mighty bond market. When the US-China tariff war reached its fever pitch, the bond markets erupted in panic: yields soared, and alarm bells rang across Wall Street. The spike in yields sent shockwaves straight to the Oval Office, with Trump’s phone ringing off the hook as business leaders and political allies warned of the looming peril that surging yields could unleash.

Sensing the danger, Trump was forced to abandon his hardline stance and pause his retaliatory tariffs — a rare moment when market logic overpowered political bravado. Most analysts now believe the worst of the tariff hikes is behind us. The sight of US negotiators returning to the table has helped cool tempers, and markets have responded with relief: Equities have rebounded, and yields have retreated from their highs.

To further lift market spirits, Trump dangled the promise of sweeping tax cuts for Americans earning under $200,000 a year, suggesting that 95 percent of the population would be spared from income taxes if enacted. Markets have always cheered tax cuts, betting that extra cash will fuel consumer spending or flow directly into investments — a win-win for Wall Street. Yet, the real boon for markets lies in the administration’s persistent reluctance to tax the super rich.

Unlike the middle class, the wealthiest Americans tend to reinvest their windfalls back into the markets. Taxing them remains a political minefield for both Republicans and Democrats, whose campaign coffers often depend on this affluent class. Once again, Trump’s team sidestepped any move to tax the wealthy, ensuring a steady stream of capital from the market’s biggest backers.

Although the immediate storm has passed, a haze of uncertainty still lingers. Fears of a recession continue to cast a shadow over US markets. Should the economy manage to dodge that bullet, there’s potential for a powerful rally in stocks and a further drop in bond yields. But for now, investors remain watchful, knowing that Trump's mercurial temperament continues to fuel uncertainty.

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Moneycontrol Pro