Wall Street just gave President Donald Trump a pass after he fired off his opening salvo on the international trade front. But make no mistake: Investors are still on edge over the return of “Tariff Man.” U.S. markets tumbled early Monday as investors reckoned with the potential for a new trade war, following Trump’s vow to impose across-the-board tariffs against Mexico, Canada and China. Yet, as it became clear throughout the day that Trump was willing to hit pause on the plans, stocks rebounded with the S&P 500 ending the day at a modest decline of 0.8 percent. The recovery was welcome news for many investors, who have been riding high for months on the promise of tax cuts, deregulation and a growth-fixated administration. Yet, the 48-hour whirlwind served as a stark reminder of the fraught new world that Wall Street lives in once again — one where a single post on Truth Social could swing a day’s trading activity. “Markets seem to think Trump won’t do this. But the past few days have shown us that he’s willing to get really close to the line and we may be in for four years of a tariff stand-off,” Ritholtz Wealth Management Chief Market Strategist Callie Cox told MM. “The uncertainty around those tariffs can really roil investors, and today we saw the first instance of that.” Of course, tariffs were a near-constant source of consternation for investors during Trump’s first administration — but this is not 2018. Cox said the tariffs in the first Trump administration were “almost pre-funded” by the tax cuts enacted the prior year. And Trump is reviving his love for such levies as the markets are already flying high with rich valuations, which has some, like billionaire hedge fund manager Paul Tudor Jones, warning that “there’s no room for mistakes.” “This is a completely, totally different landscape than Trump 1.0,” Tudor Jones said Monday on CNBC. “I don’t think we’ve ever had as many things that are connected and circular and could go wrong. So, it’s going to take a maestro to pull this off in a way that kind of preserves where we are now in the major [asset classes].” Whether that’s the goal is an open question. Trump has long viewed the stock market as a barometer of his success as America’s chief executive — and many investors had hoped that Wall Street would serve as a check on his most protectionist inclinations. But Trump and his allies have already acknowledged that there will be pain to come from tariffs. The long-run benefit, they say, will be worth any short-term pain. In the meantime, investors are only set for more anxiety. The stock market’s so-called fear gauge, the Cboe Volatility Index, spiked more than 13 percent on Monday. And with each threat of new tariffs and subsequent deal, if there is one, investors are likely in for more whipsawing in the markets. “I don’t think this is a done and dusted issue,” AllianceBernstein Chief Economist Eric Winograd told MM. “We’re going to see this repeatedly.” It’s TUESDAY — You can hit up Declan with all your thoughts on the markets (and market regulation) at dharty@politico.com. And, as always, Sam can be found at ssutton@politico.com.
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