‘Unreliable’ Trump Throws Markets Into a Tizzy 

(Bloomberg) -- The shock announcement that the Trump administration would turn its tariff gun on Mexico rattled global financial markets already on edge about the state of economic growth.

While the S&P 500 Index is still up 10% so far this year, a growing cohort of investors has begun sounding the alarm that a fundamental shift is occurring. With stocks down more than 6% in May, expectations that President Donald Trump would do all he could to prevent market turmoil have given way to concern that his tariff policies will undermine the economy.

As the Dow Jones Industrial Average careened toward its longest string of weekly losses since 2011 and Treasuries resumed a rally on demand for haven, here’s what Wall Street was saying:

Megan Horneman, director of portfolio strategy at Verdence Capital Advisors:

“This is a surprise, it’s a bold statement, a bold announcement to make to address immigration problems. Any time you surprise a market that’s been down, when you’re already looking at a market that’s been shaky, I’m not surprised at all that the market has reacted the way it has.”

“We went into the summer with a high cash position. This summer in general, it’s not only trade, we knew that the G-20 summit at the end of June would be a concern. That’s another source of volatility for the market. You have from the political standpoint, not just the trade situation, but you have the debt-ceiling debate coming back into play, you have uncertainty over when the Federal Reserve will raise rates, and then throw in another earnings season in July. We have gone into the summer knowing all of these risks -- not necessarily foreseeing the tariffs on Mexico, but we know that the political climate is not stable. The volatility is here to stay.”

Matt Maley, equity strategist at Miller Tabak & Co.:

“It’s scary. The tariffs on Mexico is a ploy, it feeds into his base, ‘Hey, I won’t let go of the border issue.’ But he’s also saying, ‘Hey China, I’m not picking on just you - I’m pushing hard against Mexico, I’m pushing hard against Europe, I’m pushing hard against Canada.’ The trade issue is not China versus America, it’s America versus everybody. That represents a huge risk.”

“I don’t know how much the tariffs are going to hurt, but I know it’s going to last long enough to hurt materially. This is not a one or two-day issue. Investors have to react now, in a more defensive way, and not wait to find out what exactly is going to happen. You can always go back in.”

Gene Goldman, chief investment officer at Cetera Investment Management:

“It’s gone from the trade war between the U.S. and China -- that’s about economics, intellectual property. We know that. The trade war with Mexico is very political. That’s surprising. If you think about old war theory, you don’t want a trade war on two fronts and we now have a trade war on two fronts.”

“It’s concerning. I’m pretty concerned. The problem is that it’s not like this is going to change politics in Mexico or change what they do because at the end of the day, those costs get passed to the consumer, they get passed to us. It’s very, very, very, very slippery. You can see how the markets reacted. It signals to China that we’re a little bit unreliable in terms of trade discussions, that Trump is unreliable.”

Simona Mocuta, senior economist at State Street:

“I wish I could erase the last couple of weeks. I think many people would share that sentiment.”

“I was surprised because it appeared to me that the U.S.-China situation the tensions are intensified there. It seemed to me as though we were taking some steps to mend relations with some of the other trading partners and allies. I was very encouraged on the removal of steel tariffs on Mexico and Canada, and the signal that we’re still looking at the auto situation but there’s no imminent threat of tariffs on European cars. Those, to me, were suggesting that we’re putting these other side conflicts aside and are focusing on dealing with China. In that context, the threat on Mexico doesn’t make sense.”

Jack McIntyre, portfolio manager at Brandywine Global in Philadelphia:

“The biggest risk is that this situation spirals out of control, but that’s the risk when any tariff gets implemented. What makes this round of tariffs different is that the Trump administration is using an economic policy tool as a political tool. If successful, this shift could broaden the spectrum of tariff usage significantly.”

“What could change the playing field? Equity market vigilantes and the business community will likely send Trump a clear message that he’s playing with fire. The integrated supply chain between the U.S. and Mexico sees manufacturing components, particularly for autos, cross and re-cross the border numerous times. With each border crossing, the cost of production escalates due to the new tariff.”

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth

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