Michael Zezas on Potential Tariff Scenarios and Fixed Income Strategy

Tariff Scenarios and Market Impact

• 📅 April 2nd is a key date for potential global tariff policy announcements, with a variety of outcomes possible.
• 📈 Strategists believe the full extent of growth slowdown from tariffs is not yet priced into asset classes.
• ❓ The main questions for markets are the certainty of tariff information and the degree of tariff increases.

Market Sensitivity and Uncertainty

• 📉 While markets may seem accustomed to tariff news, the playing field is larger than many anticipate, extending beyond China to Europe and other regions.
• ⚠️ This broader uncertainty is reflected in measures of tariff policy uncertainty and declining CEO confidence, which may not have fully filtered through to markets yet.
• 🧂 Any announcements on April 2nd should be taken with a grain of salt, as there is often room for negotiation and exceptions.

Fixed Income vs. Equities Strategy

• 📊 The current environment, characterized by lingering growth uncertainty and potential retaliations, makes fixed income more attractive than equities.
• 💰 The expectation is for yields to go lower, with the 10-year Treasury yield potentially hitting 4% by year-end and 3.5% by the end of next year, driven by a growth downdraft.
• 🏦 Investment-grade corporate credit is also considered a good place to be, as balance sheets are relatively healthy and can sustain current conditions unless a recession occurs.

Geopolitical Response to Tariffs

• 🌍 There's a possibility of blocks forming in response to US tariff actions, though this has not been a primary focus. This represents an execution risk for the administration's strategy.
• 🤝 While unlikely, a coordinated response from Japan, South Korea, and China would be surprising given their differing commonalities.