Putting it All Together
It's unusual to see fiscal policy having an outsized impact on the market and its direction.
But given the significance of the ballooning debt and widening deficits (driving bond yields higher) - it's front and center.
From mine, higher yields are equally as important as any tariff deals.
Now should the market get some clarity on where Trump is heading with tariffs - the market could get some respite.
We saw this with the 90-day pause and the 10% deal reached with the UK.
However, since the UK deal, we have seen nothing. And now we're getting more noise on:
Europe 50% tariff - effective June 1st; and
A new 25% tariff on Apple iPhones made in India
If you ask me, Tim Cook should just pay the 25% tax on iPhone's and split the difference with consumers (Trump won't like to see the tariff impact passed on).
But all of this only reinforces how volatile and unpredictable the tariff situation is.
Despite the so-called 90-day pause (which sparked the rally) - Trump remains on a tariff war path.
And when I put all this together (e.g., rising yields; the deficit widening; tariff and inflation risks) - with the market trading at 22x forward earnings - why would you pay the premium?
For me, the risk reward is simply not there. Remain patient.