Blain’s Morning Porridge July 30^th 2025: Trump Has Surprised Markets to the Upside – It’s Difficult to Accept.

“To know is not to be wise, but there is no fool as great as a knowing fool.”

The Market Commentariat feared the worst when Trump took office. Liberation Day confirmed their worst fears – global market and economic meltdown on trade mayhem seemed inevitable. But Trump has played a blinder of a trade game. He has surprised to the upside. Will it last?

Is the US stock market so strong because we expected it to be much weaker? I suspect that’s about the way of it….

The strength of American stocks over the last few months has been extraordinary. Company Earnings and the market’s resilience have caught professional market observers and commentators by surprise.  Institutional investors who shorted the market have been forced to scramble to cover positions. My conclusion is there is now something of a relief rally under-lying the extraordinary apparent strength of the market.

When the market started tumbling after the Liberation Day tariff clown show, we expected much, much worse.

Expectations were wrong.

Prices tumbled after factoring increasing weakness on the degree of uncertainty Trump’s Tariffs threats were causing, and the risks to the Treasury market the Big Beautiful Tax Cutting Bill seemed likely to trigger. These fears multiplied each other – leading the market to fret, worry and anticipate a deeper downturn as the uncertainty seemed to multiply upon itself.

But Armageddon did not happen. There was no meltdown. The reality has been far softer than out fears. Trump effects did not crash the market or the economy.  To be fair, 80% of US firms are beating analyst earnings predictions because they were set so low – low to reflect that uncertainty. Yet, that degree of apparent resilience is one factor boosting the market! A beat is a beat is a beat. (Tell the market you expect to score a miserable 3 in a test, and it will be delighted when you get 4, even if the pass mark is 7!)

There is even growing admiration for what Trump has achieved – slicing through consensus and winning the poker game with a series of one-sided tariff agreements. Much as it hurts to admit it – Trump has played a stunning game. We underestimated his ability to read and game how the other players would react to his domestic and global disruptive style.

To win the first quarter of his second term, all Trump needs now is a good result on a trade-deal with China.

One thing that struck me this morning was news of the Magnitude 8.7 earthquake in Kamchatka – which has put the Pacific on Tsunami alert. Each point increase in magnitude raises the power scale of an earthquake by a factor of 10! I suspect the same is true for tariffs. Thus a magnitude 50% tariff earthquake will have an effect on the economy (consumption/inflation/percentage of trade of the nation involved) about 35 times the effect of a magnitude 15% tariff! The important point to note is the US economy can deal with Trump’s threatened 15-20% baseline tariffs far better than a 30% tariff!

That does not mean the market is not still full of risk. It is. One of my chums asked a great question yesterday: how much economic growth was pulled forward to get ahead of the tariffs? Lots.

Other issues to consider in the data will include how the following play out:

• There is still likely to be long-term trade pushback from Trading partners looking for better deals. US diplomats will have their work cut-out reassuring Europe and other allied powers of their long-term relationship with the new USA.
• The effects of higher tariffs are still be felt on the economy. Tariffs will be absorbed to a degree by exporters, but are still a tax on consumption at a time when US consumers are looking “tapped out.”
• There are still the consequences of Trump policies on immigration to play out on jobs, and ongoing supply chain and trade frictions.
• There is still a threat to the Fed – what is the likelihood Trump throws the dice on its’ independence, and risks a Treasury meltdown?
• Wages are still lagging inflation – if Trump can’t deliver the promised return to prosperity he promised voters, what will polarised politics do to his programme at the mid-terms?

But there is also upside – over the next few weeks the tariff threat will be seen to have receded. That will give corporates confidence and the certainty they need to make investment plans. I’ve previously argued no right-thinking corporate board would commit to major capex plans when Trump’s mercurial disruption made certainty a spinning target. Now we may be in for calm.

Who knows? Maybe some of the foreign companies that blithely promised massive investment into new US factories might actually deliver.

They key thing is – the last few months were not as bad as we feared – and may yet prove far better than we expected – a clear echo of Blain’s second market mantra: “Things are never as bad as we far, but seldom as good as we hope!” Does my admission Trump has not been the complete and utter Numpty I expected him to be mean I would now vote for him? Probably not when I look at who he has surrounded himself with…

The question should maybe be – why should I vote for whomever the Democrats put up? Not that I have a US vote – but you get the drift.

Out of time, and back to the day job..

Bill Blain

Author, The Morning Porridge

CEO Windshift Capital

Partner Shard Capital