Almost Friday! We’re covering the White House’s precarious balancing act between economic pain and stock market stability, updates on tariffs, and Trump’s exemption for automakers. First time reading? Join 190,000 self-directed investors gaining an edge every morning. Sign up here. 

Today’s column is a guest post from macro strategist Jordi Visser, founder of Visser-Labs, a consulting firm helping investors navigate disruptions from AI and digital assets. Previously he was CIO at Weiss Multi-Strategy Advisers and a Managing Director at Morgan Stanley.

Traders face Trump’s balancing act

President Trump is making an old bet with new risks.

In his latest address to Congress, the Commander-in-Chief emphasized that Americans should brace for short-term economic pain as a necessary step toward fixing systemic fiscal issues. 

His proposed strategy — tariffs and spending cuts — aims to rein in deficits and improve the debt-to-GDP ratio.

But a key vulnerability remains: the stock market. 

Markets are already flashing warning signals with the S&P 500 retreating to its 200-day moving average, a historically significant level that often triggers volatility. This scenario mirrors August 2022, when Federal Reserve Chairman Jerome Powell’s “there will be pain” speech came just before a 20% market drop. 

Back then, the central bank was tightening monetary policy to combat inflation, whereas today Trump’s two-pronged strategy will provide fiscal tightening. 

History could now repeat itself, only this time with a weaker economic backdrop. 

The Trump administration’s approach, while fiscally responsible on the surface, overlooks the critical role of stock market stability in sustaining economic growth and confidence. 

Since 1982, government debt-to-GDP has ballooned from roughly 30% to 120%. Meanwhile, equities’ market capitalization-to-GDP ratio — the “Buffett Indicator” — has surged from 43% to a record 211%. 

Given the sheer size of today’s market, a substantial downturn could profoundly disrupt economic stability, tax revenues and consumer confidence, raising the stakes on the fiscal issues that the president wants to fix.  

Trump’s awareness of this dynamic is evident in his cautious tariff implementation. Recent market reactions, though, underscore growing investor anxiety and widespread weakness.

Further economic vulnerabilities include rising delinquencies among low-income consumers and widening credit spreads. 

What’s more, job growth — which averaged 375,000 a month during the 2022 downturn — has slowed dramatically, averaging about 150,000 a month since May and ultimately leaving the economy more exposed to market-driven disruptions. 

The administration’s balancing act between fiscal tightening and stability is becoming increasingly wobbly, and the economy today is much more susceptible to stock market fluctuations. A pullback in asset prices — exacerbated by tariff concerns — could further erode consumer confidence, constrain spending and weaken employment. 

Investors should watch closely. Not just for the tariffs themselves, but for signs that market weakness could force Trump to blink first.

History suggests that when stocks fall, policy adjustments follow. 

The only question is how much pain will markets endure before that happens.

For more of Jordi Visser’s work, you can read his investor letters and follow his YouTube channel.

Market snapshot:

Elsewhere:

🇲🇽Trump is considering more tariff adjustments. Specifically, agricultural exemptions for Mexico and Canada. He also announced a one-month tariff exemption to automakers on Wednesday after speaking with execs from GM, Ford, and Stellantis. The president also said he spoke with Canadian Prime Minister Trudeau, calling it “somewhat friendly.” (CNBC)

🇨🇳China is secretly worried Trump will win on trade. Beijing officials reportedly fear that President Trump could push China into a similar isolation as Moscow. Xi Jinping is now playing defense, hoping to salvage as much as possible of a global trade system that helped pull his nation from poverty. (WSJ)

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💰️An ex-Morgan Stanley banker will lead the US sovereign wealth fund. The Commerce Department is tapping former banker Michael Grimes to lead the initiative, which is part of Trump’s effort to give the US a stake in projects he considers critical to national security. Grimes is leaving Morgan Stanley after a 30-year run to join the administration. (Bloomberg)

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Rapid-fire:

• Japanese 10-year bond yields hit a 16-year high as traders expect rate hikes from the Bank of Japan (CNBC)

• Moderna stock surged double digits after the vaccine maker disclosed its CEO bought $5 million in shares (Barron’s)

• The euro hit a four-month high against the US dollar (Reuters)

• The White House is aiming to eliminate the Education Department (WSJ)

• Odds of a bitcoin-only strategic reserve are back on the rise (Pomp Letter)

• Crypto industry veterans say Trump’s love for bitcoin is more than a fling (Business Insider)

• Amazon’s cloud unit formed an agentic AI group (CNBC)

• Democratic Rep. Sylvester Turner died at 70 years old on Wednesday (WSJ)

Last thing:

About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback?

Write me at [email protected], reply directly to this email, or ping me on X @philrosenn.