Stock and GDP Outlook, for Week Ending 07/18/2025
A Hobbled Trump Could be Good for the Economy
Stock prices and the mean expected NGDP growth rate fell slightly last week, as tariff madness continued to make market participants scratch their heads. There are links here, here, and here, for examples.
I won’t say much more about the tariffs currently, as I take these threats about as seriously as Wall Street, believing final decisions when I see them. Nonetheless, the sheer lack of logic in formulation and execution is something that not even the countries of lowest esteem should tolerate. The new 50% tariff threat on Brazil is related to a political matter for example, having nothing to do with economics, but then tariffs never have anything to do with sound economics anyway.
It might be tempting to think the mostly non-credible tariff threats haven’t hurt the stock market, since new all-time highs were recently reached, but that would be to ignore the likely fact that stock prices are now are a lower growth trajectory, as is expected NGDP. That is, at least ceteris paribus, and yes this may be a rather slight effect, but why throw away growth?
Not surprisingly, inflation expectations continued to rise and ever more threaten additional stock market gains, sans new positive real growth shocks. While the jury’s still out on productivity gains from the early generations of AI Large Language Models, if the increased investment in AI chip makers like Nvidia is any indication, non-trivial productivity gains are expected. Nvidia reached $4 trillion in market cap this week, an over 1500% gain from 5 years ago. While this technology is still far from any meaningul definition of general intelligence, it offers considerable opportunities for both augmentation of human effort and full-automation.
Of course the attacks on the Fed’s independence continued this week, with the Fed holding steady in the face of unprecendented public efforts to undermine confidence in the institution. And an intentionally cruel anti-immigration policy is seemly turning the American public toward more friendly immigration stances.
This, and much other Trump mayhem, may soon matter less however as his administration is now consumed by questions over its role in conspiracy theories it fed regarding the Epstein scandal. It isn’t clear how the damage this scandal is causing can be mitigated. If true, a very lame duck Trump could be very good for markets going foward, but tail risks are still fatter than usual.
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.
Links to Data:
Economic Data Sources:
https://fred.stlouisfed.org/series/SP500
https://www.wsj.com/market-data/stocks/peyields
https://www.barchart.com/futures/quotes/ES*0/futures-prices
https://ycharts.com/indicators/sp_500_earnings_per_share_forward_estimate#:~:text=Basic%20Info-,S&P%20500%20Earnings%20Per%20Share%20Forward%20Estimate%20is%20at%20a,28.27%25%20from%20one%20year%20ago.
https://www.cnbc.com/quotes/.VIX
https://fred.stlouisfed.org/series/DTWEXBGS
https://fred.stlouisfed.org/graph/?g=Ee9i
https://fred.stlouisfed.org/series/T10Y3M#0
https://fred.stlouisfed.org/series/DGS10
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
https://tradingeconomics.com/commodity/crb?user=nunote
https://www.cnbc.com/quotes/@CL.1
https://www.cmegroup.com/trading/en
https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx
https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html