3 scenarios which may happen in the market

Analysis of market scenarios amid strong economic data, high inflation, tariffs, and Fed policies with implications for US and global markets.

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Key Takeaways

Strong economic data contrasts with persistent inflation above Fed target.
Tariffs contribute to inflation, complicating Fed policy decisions.
Trump's conflicting policies create uncertainty in market direction.
US may sustain high inflation with tax cuts and dollar dominance, but global impact could be severe.
Investors should consider defensive stocks amid ongoing inflation and interest rate risks.

What the video covers

Recent economic data shows strong manufacturing activity, low unemployment, but inflation remains above Fed target.
Core CPI and overall CPI increased, complicating the Fed's ability to lower interest rates.
Trump's tariffs on China, steel, aluminum, and potential tariffs on Canada and Mexico add inflationary pressure.
Three possible Trump scenarios are explored: ignoring inflation, blaming the Fed, and a third scenario not fully covered in the excerpt.
Ignoring inflation could lead to continued tariffs, pressure on the Fed to lower rates, and high inflation coexisting with tax cuts in the US.
This scenario could be neutral for the US economy but devastating for other countries due to currency and inflation risks.
The fake blaming the Fed scenario involves Trump publicly demanding lower rates but privately trusting the Fed to keep rates high.
This allows Trump to maintain popularity while tariffs continue, protecting the US economy from runaway inflation.
The analysis suggests the market will remain challenged with inflation around 3% and interest rates staying high longer.
Recommendation includes transitioning from growth stocks to defensive sectors like pharmaceuticals and low P/E stocks.

Chapters

Why is the Federal Reserve unlikely to lower interest rates soon?

Because inflation remains above the Fed's 2% target, with recent CPI data showing increases, making it difficult for the Fed to justify lowering interest rates.

How do Trump's tariffs affect inflation and the market?

Tariffs artificially increase the price of goods, contributing to higher inflation, which complicates the Fed's ability to lower interest rates and creates conflicting pressures in the market.

What are the potential market scenarios based on Trump's policies?

One scenario involves ignoring inflation and continuing tariffs while pushing for lower rates, risking high inflation; another involves Trump blaming the Fed publicly while trusting them to keep rates high, balancing tariffs with inflation control.

Full Transcript — Download SRT & Markdown

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Okay, so obviously I've been monitoring the market every day, but I refrained from uploading any market updates in recent weeks only because there was really not much to say about the market. I mean, it would just be repeating what I said in

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previous weeks over and over again, reaching the same conclusion. So there's really not much to talk about, but at this point, I thought that it's probably a good time to refresh ourselves. A lot's been going on, so let me try to

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explain in simple terms. Okay, so let's try to assess the market by looking at the key data that came out in the previous weeks. As usual, early this month, global manufacturing PMI data, ISM manufacturing data came out. Like

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previous months, the data showed strong economic activity, with global manufacturing PMI showing a 51.2 versus the previous month of 49.4, and ISM data also showed a 50.9 versus 49.2. ADP non-farm employment change data also came out showing strong as well,

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with 183,000 versus the previous month of 176,000. Unemployment rate came down even further, showing a 4.0% versus the previous month of 4.1%. Now, most important of all, the data which the whole world was waiting for came out, which was the CPI data. Core CPI on a

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year-over-year basis showed a 3.3%, which was higher than 3.2% last month and even higher versus the forecast of 3.1%. Year-over-year CPI came out at 3.0%, which was higher than the 2.9% from last month. Now, this is a status quo from

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what we observed in the previous months. Basically, the manufacturing activities are still strong, showing a healthy economy. Job market is also strong with the unemployment rate going down, and CPI is even higher, showing a 3.0% growth. Now, you'll remember that I told you that the

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market wants a weak economy coupled with lower inflation so that the Federal Reserve will be steered towards lowering the interest rate and slowing down the Federal Reserve balance sheet contraction. However, the situation is still the opposite, especially the CPI data which

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came out on February 12th was really problematic for the market, considering this metric is what the Federal Reserve directly monitors to decide their monetary and fiscal policies. Remember that I told you that the Federal Reserve target inflation rate is 2% level. We're

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still far away from there, and until we hit that point, it'll be extremely difficult for the Federal Reserve to lower the interest rate. Now, on the other side of the market, Donald Trump has been going full force on implementing the new

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policies. The new policies were heavily focused on the implementation of the new tariff. First, he decided to impose a 10% tariff on all goods from China and also announced a 25% tariff on all steel and aluminum imports. He also announced

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potential 25% tariff on goods imported from Canada and Mexico, but these tariffs are delayed by a month. Now, I explained multiple times in my previous videos, but the situation is quite easy to assess. Let's put everything together and try to

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understand what's been going on. The US manufacturing activities are doing well, unemployment rate is low, and inflation is still high, which means interest rate going lower is still a far-fetched scenario. Now, Donald Trump actually implementing these tariffs is an even

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bigger threat to the market, given artificial increase of the price of goods by adding tariffs only contributes to the higher inflation. Under this situation, it'll be even more challenging for the Federal Reserve to lower the interest rate. But at the same time,

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Donald Trump is threatening the Federal Reserve and Jerome Powell to lower the interest rates even further. Doesn't this sound very conflicting? Basically, as an American president, he should, or I guess he should, want the inflation to cool down as soon as possible, but is

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implementing tariffs which drives the inflation high, and he also publicly shouting that the interest rate should be lowered, which also drives the inflation higher. Okay, so with all these confusing stuff ongoing, let's try to guess what Trump is

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thinking and what may happen down the road and what implications it may have to the market. Now, you can think of around three scenarios which are going through Trump's head. The first scenario is the ignore inflation scenario. Now, I

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don't know what you guys think of Trump, but I don't think he's a dumb guy, so he must be thinking something. So in my view, this scenario is where Trump is basically thinking that he's not held accountable for the high inflation and

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everything is just to be blamed on the former president, and he's free to ignore the inflation. Under this scenario, he'll continue to implement the tariffs and force the Federal Reserve to lower the interest rate and just continue to watch

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the inflation go higher and higher. Now, under this scenario, the implication to the market will be the following: there's a very good likelihood that Jerome Powell will continue to resist Trump's orders, and down the road either

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Jerome Powell starts to slowly lower the interest rate or he gets replaced with another person who lowers the interest rates. Now, as I told you, lower rate implies more liquidity in the market, so technically it should increase people's

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purchasing power, but they'll be faced with a high inflation, which at the same time reduces people's purchasing power. Now, at this point, if Trump decided to lower the taxes as well, as he always said he will, people's purchasing power

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will be boosted again, outplaying the high inflation. So basically, despite the tariffs and high inflation strictly within the US, the economy will continue to somehow function in a normal way with the high inflation just kind of laying by our side at all times. While the US

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may sometimes get by, this will be a disaster scenario for the rest of the world. Now, the reason the US can afford cutting taxes and implementing high tariffs is because they have the most lethal weapon in the world, which is the

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dollar. Because the dollar is the fiscal currency of the world, they can continue to print the dollar to fund the losses from their taxes and pay the high cost of inflation. But for the other countries, if they accelerate the supply of their

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currency to play along with the US, their inflation will be even higher because their currencies are very weak versus the dollar and ultimately fall into a hyperinflation trap, which will make their currencies worthless. So in this scenario, the impact may be neutral for

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the US economy and the market while devastating for the rest of the world. Obviously, the US will be impacted to some extent with other countries falling apart, so I won't say it will be good for the US either. Now, the second scenario is

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the fake blaming the Fed scenario. Now, I don't know, but deep in Trump's mind, he may be very wary of inflation, but even under this scenario, he needs to show everyone that he cares about their investments and 401K. So he's basically

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pretending that he wants a low interest rate, but the Fed is not listening to him. He might even be having side conversations with the Fed saying that he's just acting for his popularity sake, so just act in accordance with the

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inflation data. Now, under this scenario, Trump may continue to implement the tariffs given that this is what he promised to the world and keep crying out that a low interest rate is needed, but he'll trust that the Fed will keep

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the interest rates high. This way, Trump can achieve three things: number one, he can fulfill his obligations by doing what he told the people he'll do, i.e., implement the tariff, and number two, his actions will be protected from the high

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inflation with the Fed keeping the interest rate higher for longer, and number three, he can maintain his popularity by blaming everything on the Fed and acting like he cares for people's investments. An ideal scenario for Trump. Right now, under this scenario,

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the US economy and the market will obviously suffer due to high inflation and high interest rate. For the rest of the world, it'll be the same, so everyone will suffer. Now, the third scenario is the fake the tariff scenario. Now, until

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to

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Tariff he also did Implement a tariff on Canada but he delayed it for 30 days he also did Implement a tariff from Mexico but he also delayed it for 30 days now up until today while there has been so

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many news reports nothing really happened apart from a small 10% tariff on Chinese Goods now this makes us wonder whether Trump really wants all these tariffs to be implemented from the first place so assuming he's faking all these tariff announcements what will be

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the implications on the market for the US economy and the market it'll be neutral I.E the same as now inflation will still be high but not that high at around 3% level and interest rate will continue to stay high for a bit longer

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so not good for the market but not much worse off than now either same for the rest of the world so these are the three scenarios I'm envisioning at the moment what are your thoughts let me know in

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the comments down below but what I want to say is that number one at the best the market will be neutral and number two inflation will stay high for the foreseeable future and number three interest rate may stay higher for a bit

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longer so my recommendation still holds the same I know there has been some wild news like the Deep seek and all that but even that aside I recommend slowly transitioning from growth stocks to defensive stocks like Pharmaceuticals and low price to earnings ratio

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companies just like I have been saying for the past few months I'll be back with more videos very soon

Topics:market analysisinflationFederal Reserveinterest ratestariffsDonald Trumpmanufacturing PMICPI datastock marketinvestment strategy

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