Donald Trump’s increasing intervention in the US economy is raising concerns among market analysts. Actions such as threatening tariffs and seeking influence over bodies like the Federal Reserve are unsettling investors. His administration appears to be adopting a more hands-on approach, mirroring Chinese economic practices to compete on the global stage. This shift away from free-market principles has led to state intervention in sectors like technology and steel, raising questions about the long-term implications.
Macquarie strategist Viktor Shvets suggests that populist policies often damage growth while increasing inflation and fiscal deficits. He warns that Trump’s tariffs, immigration policies, and an impaired Fed could lead to stagflation. Despite these concerns, financial markets have shown a muted reaction, with corporate debt spreads at historic lows and equity markets remaining robust. The S&P 500 recently hit a record high, seemingly detached from the underlying economic shifts.
One theory suggests that investors anticipate Trump to eventually back down from his more extreme policies. Another posits that the rise of artificial intelligence could overshadow the impact of Trump’s interventions. However, the sheer volume of capital in the global economy may also be blunting traditional market cycles, shifting risk to areas beyond the financial system.
Viktor Shvets notes that investors are operating in a world where traditional market fundamentals matter less, and risks outside the system are becoming increasingly important. He advises investors to focus on major themes like technology, defence, and energy transition, while acknowledging that populism and institutional erosion are likely to persist.
