Trump’s Trade War Means It’s Time to Go All-In on This Asset

That was a close call.

In a dramatic turn of events that seemed pulled straight from a financial thriller, U.S. President Donald Trump unleashed a storm on Saturday night, imposing sweeping tariffs on America’s three largest trading partners: Canada, Mexico, and China. The markets were caught in the eye of this economic tempest, which sent risk assets spiraling in one of the most significant crashes in the past decade.

The specter of a full-blown trade war loomed large, threatening to unravel years of economic progress.

But just when the world braced for impact, we found ourselves in the middle of a bona fide plot twist…

On Monday, in a nail-biting, last-second maneuver, both Canada and Mexico clinched crucial eleventh-hour deals with the U.S. to delay these tariffs. A global trade war has been averted – for now, at least – and financial markets across the globe rebounded with fury.

To some, this rollercoaster of events signals a new era of volatility… but to us, it signals the opening of a potential golden window for investors.

Allow me to explain.

It’s Beginning to Look a Lot Like Altcoin Season

With traditional markets showing such volatility, there is one market that is often seen as a refuge in times of economic uncertainty: the crypto market. With its unique detachment from traditional economic levers, cryptos could be the next frontier for savvy investors looking to capitalize on this unexpected turn of events.

Yes, we like stocks on this rebound now that a global trade war has been averted, but we think cryptos can and will do better over the next few weeks and months.

That’s because it is starting to look a lot like “altcoin season.”

More on that in a moment. First, let’s talk about the trade war that almost was. On Saturday night, Trump issued 25% tariffs on a wide array of goods from Mexico and Canada, as well as an additional 10% tariff on a variety of Chinese goods coming into the U.S. In total, the tariffs would have impacted about $1.3 trillion in total trade—or about 5% of U.S. GDP. According to Bloomberg research, they would have taken the average U.S. tariff rate from 3% to 11%, the highest it has been since before 1950.

The market reacted strongly to those tariffs because, if they became effective and normalized, they would have significantly slowed the U.S. economy and reignited inflation.

According to research from the Federal Reserve, every percentage point increase in the average U.S. tariff rate would coincide with a 0.15% decrease in GDP growth and a 0.1% increase in the core PCE inflation rate. Therefore, if the average U.S. tariff rate increased eight percentage points in response to Trump’s announced tariffs, then U.S. GDP would theoretically slow by 1.2%, and core PCE would theoretically rise by 0.8%. At those rates, we would be looking at a U.S. economy with approximately 1% growth and more than 3% core inflation.

Those are bad numbers.

Unsurprisingly, stocks don’t perform well in those conditions. Going back to 1947, the stock market has tended to rally in about two out of every three quarters, with an average quarterly return of over 2%. That’s “normal” for the market. But when GDP growth is low (right around 1%) and core inflation is high (over 3%), the stock market only rises 44% of the time, with an average quarterly decline of over 2%. This graphic tells the tale:

So, the market was fearful that, if Trump’s tariffs went into effect, the economy would slow, and inflation would rise in a manner historically negative for stocks. Which is why they sold risk assets in response.

But thanks to a pair of eleventh-hour deals, none of those tariffs went into effect; and we think the world will avoid big tariffs for the foreseeable future.