The tariff drama seems to be taking the form of a stock market soap opera. There is no dearth of action, threats, reactions, and pullbacks. All the drama that’s going on as a precursor to negotiations between nations ends up being just noise and bluff when there is a quiet withdrawal of trade-threatening tariffs.
What is happening now will eventually reduce investor confidence across the board, and this can soften valuations if not adequately supported by earnings. We may also see more money move to safe-haven assets and markets. The effect on interest rates and inflation within the USA is also something that could surprise.
Given the fluid situation, equity investing needs to be bottom-up, defensive, precise, and prescient. Stock choices must be insulated from global factors and more aligned with the domestic economy. Investors must also be careful not to overpay for globalized businesses, cyclical themes, and fads. When things change quickly, valuations can unravel very rapidly.