Will Trump's Tariffs End the Bull Run?

Despite a wall of worry, stock markets have been on a tear.

- Vasu Menon

The MSCI All Country World Index, a measure of global equities, has risen by about 25 percent over the past four months.

This begs the question of whether markets are ripe for a correction or even a sharp pullback now that US President Donald Trump's reciprocal tariffs for most countries have finally kicked in from Aug. 7.

Several headwinds lurk on the horizon, but short-term twists and turns in markets are hard to predict. After the strong rally, a consolidation cannot be dismissed.

Occasional corrections are not a bad thing and may not signal a change in the medium-term trend.

Markets need to catch their breath from time to time, and it is healthy.

Related to tariffs is the US job market and economy, both of which are showing some signs of weakness from the 10 percent baseline tariffs that have been in place since April.

US Federal Reserve policy is also on standstill as the central bank tries to understand how tariffs will impact the economy.

UNCERTAINTY ABOUT IMPACT OF U.S. TARIFFS

Mr. Trump's reciprocal tariffs are probably the No. 1 worry for markets at this juncture. There is greater headline clarity now that he has decided on his reciprocal tariffs.

Nevertheless, the seemingly arbitrary nature in which these tariff rates were set still leaves lingering concerns about policy unpredictability and uncertainty about whether the tariff rates may be raised again in the future.

Investors are also worried about sectoral tariffs which are still playing out. Mr. Trump's latest tariff announcements have caused the effective tariff rate on US imports to jump nearly ninefold this year, to its highest level since the 1929-1939 Great Depression.

How this will impact the US economy and inflation is still unclear. As the reciprocal tariffs have only taken effect in recent days, the effects will only become more evident with the passage of time.