President Trump’s 1 August deadline for the imposition of ‘reciprocal tariffs’ on trading partners is now behind us.

The White House can point to several trade deals, notably with the UK, Japan and EU, while negotiations continue with China ahead of a deadline of 12 August.

In the four cases mentioned, America will apply tariffs on imports at a lower rate than that threatened on ‘Liberation Day’ on 2 April, and that is helping stock and bond markets and the dollar rally from the spring lows in the view Trump will not follow through on the full tariff programme and spark a global tit-for-tat trade war which no-one is likely to win.

The imposition of much higher levies on Brazil, Canada and Taiwan, to name but three, and threats of higher duties in pharmaceuticals on the 1 August deadline day is prompting something of a rethink, however, as this brings the worst-case scenario of 2 April back into view.

As discussed in this column before investors now have to decide whether:

Trump will back down, once a deal of some kind is reached, and tariffs will be reduced from the 2 April proposals to levels which do far less damage to global trade flows.

This is a storm which will pass once Trump’s second term ends in November 2028 (even if tariffs have been an issue since his initial salvo in spring 2018).

Trump’s tendency to rule by Executive Order and bully the US Federal Reserve, in uncanny echoes of emerging markets such as Turkey, means US assets can no longer be afforded their current premium valuations, on the premise the era of American exceptionalism is over.

Spring’s rally leaned on the first view – any recurrence of fears about the third option could lead to another shift in market mood.

THREE TRENDS TO WATCH

Investors can perhaps track sentiment in three ways.

The dollar, as discussed in July, where weakness would point to increased aversion to US assets, strength to renewed comfort with them.

US 10-year treasury yields, where Trump’s tax cut-and-spend plans raise fresh worries about the galloping US deficit, even if tariff income is a potential source of incremental income. Rising yields would speak of concern, especially if they keep going up as the Federal Reserve cuts interest rates, while falling ones would point to an improvement in sentiment.

Trends in overseas equities, as also discussed in July. US equities have left the rest of the world way behind since the end of the Great Financial Crisis in 2009. However, emerging markets (EMs) are traditionally a beneficiary of a weaker dollar. EMs also learned their lesson from their own debt crisis of the late 1990s and, as a rule, carry healthier sovereign balance sheets than the US (and many other Western nations).

This third trend need not be confined to EMs, either, if investors do decide to diversify away from the dollar and US assets more widely. The MSCI Emerging Markets index is making a run at its prior all-time high of 2021 and the MSCI World ex-US benchmark just might be looking to break out and reach new peaks all of its own. If both indices continue to run, then there really may be something afoot.

TALKING TECHNOLOGY AND TURKEY

Gains for those indices would not mean the US is about to collapse, just that it may be ready to underperform after a lengthy period of dominance. For the record, a classic emerging market like Turkey trades on around 11 times forward earnings for 2025, way less than the 25 times multiple applied to the S&P 500 right now, according to Standard & Poor’s research.

Granted, this is an intentionally provocative comparison, and it can be rebutted quickly on the grounds that the biggest constituents of Istanbul’s BIST-100 are arms manufacturer Aselsan (ASELS:IST), Türkiye Garanti bank (GARAN:IST), holding company Koc (KCHOL:IST), construction firm ENKA Insaat (ENKAI:IST) and airline Türk Hava Yollari (THYAO:IST).

They are all fine companies, but the highest market capitalisation among them is $21 billion and none of them can necessarily be seen as secular growth plays, especially ones with a strong whiff of artificial intelligence, for all the Turkish economy’s considerable long-term potential and the country’s strategic and geopolitical importance.

This is in marked contrast to the US equity market where NVIDIA (NVDA:NDQ), Microsoft (MSFT:NDQ), Apple (AAPL:NDQ), Amazon.com (AMZN:NDQ), Alphabet (GOOG:NDQ) and Meta Platforms (META:NDQ) are the six biggest stocks by market capitalisation. The other member of the Magnificent Seven, Tesla (TSLA:NDQ), ranks ninth.

Between them they represent 35% of the S&P 500’s $54 trillion stock market valuation, a smidge below the 36% peak reached in late 2024. Again, any move away from them and rotation toward more cyclical names, for whatever reason, could signal, and play a role in, market sentiment toward US assets more widely, even if that seems hard to believe right now given the unabashed enthusiasm for AI-related narratives.

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