HomeBusinessThe big question in the Trump markets is how much 'MAGA' 2.0...

The big question in the Trump markets is how much ‘MAGA’ 2.0 will cost

(Bloomberg) — Investors bracing for President Donald Trump 2.0 know two things: The new administration will try to push through his “Make America Great Again” agenda, and the resulting bill could be sky-high.

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The Republican victor is poised to unleash a new round of policies — tariffs, tax cuts, immigration measures — to both boost economic growth and protect the nation from an influx of cheap, overseas goods and workers. While Trump’s first term saw similar policies and coincided with a corporate profit boom, these measures, now being implemented, threaten to reignite an inflationary spiral that took years to quell in the wake of the pandemic.

Markets greeted Trump’s victory with both optimism and fear. Stocks rose in early Wednesday trading, with futures on the S&P 500 (^GSPC) rising more than 2% on his pro-business agenda, including deregulation and activist industrial policies. No such cheer was evident in fixed income, as 10-year Treasury yields rose toward 4.5% on expectations that a widening budget deficit under Trump will force the government to default on its borrowings.

Higher yields could put pressure on the risk-taking rally by hurting rate-sensitive stocks and stifling new financing efforts by corporate issuers and consumers. Ten-year gains for equities are already 35% above the norm, and corporate bond risk premiums are at epic lows, certainly narrowing the margin for error for the economy.

“Stocks have the tailwind for now, but equities will keep a close eye on returns,” said Adam Crisafulli, founder of market intelligence firm Vital Knowledge, who previously spent more than a decade at JPMorgan Chase & Co. If the slump in US government finances continues, it will interrupt the Trump stock celebration.”

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Then there is a growing risk of protectionism. According to JPMorgan, raising tariffs on Chinese imports to 60% alone would hurt the S&P 500’s (^GSPC) profits by as much as $15 per share, an amount that could wipe out nearly half of 2025 income gains. A capped version of the tariff plan, with an overall rate of 20%, could cut U.S. GDP by 0.8% and increase price pressures in coming years if only China retaliates, Bloomberg Economics predicts.

“A material increase in rates would represent the current administration’s most significant policy deviation and potentially the largest source of volatility,” JPMorgan strategists including Dubravko Lakos-Bujas wrote in a note before the election results. “Today’s macro environment is very different from eight years ago, when the business cycle was in mid-cycle, the labor market was less tight, inflation was not on the Fed’s radar and pro-growth 1.0 policies were easier to implement and had more impact. to the core.”

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