Week Ahead Outlook - February 10, 2025

Market Commentary – February 10, 2025

There’s been a lot thrown at the markets over the past three weeks since Donald Trump returned to the White House.

The equity and bond markets have had to digest lots of news: from threatened tariffs and headline-grabbing executive orders to the regular parade of corporate earnings and highly anticipated economic releases. Yet, the markets appear to be holding strong (so far) in a seasonally weak month. They’ve sometimes whipsawed back and forth as investors have watched how formerly “normal” ways of doing things have been upended. One publication we follow described Trump’s rapid series of executive actions as “shock and

The technique isn’t new. Last week, we compared Trump to Teddy Roosevelt for carrying a big stick. This week the comparison is Franklin Roosevelt. While FDR and DJT share little on the surface, both spoke plainly to the public—a trait they may owe to their New York roots (just like Teddy). Another parallel: a blizzard of executive orders overwhelming opposition. FDR signed over 300 a year, many in his first 100 days. Trump, who has praised FDR before, seems just as eager to move fast. The result is market volatility—which, to their credit, the markets have been able to digest and manage. But again, we say “so far.”

Threat Of Tariffs Fades From The Front Page… For Now?

In what appears to be the shortest trade war on record, last Monday – just hours before a 25% tariff on goods from her country were due to take effect – Mexican President Claudia Sheinbaum announced a deal to delay them. She agreed to post 10,000 Mexican troops to her northern border to cut down on illegal crossings and the illegal export of fentanyl, one of Trump’s main demands. Shortly after, Canadian Prime Minister Justin Trudeau announced that Canada would also cooperate in cutting down the transport of fentanyl and, while he did not place troops on the border (the Canada-U.S. border is 3x the length of the Mexico-U.S. border), he did pledge assistance from Canadian authorities in clamping down on illegal crossings. The fright that struck the markets the week prior suddenly faded into relief.

Then, last Friday, President Trump announced that he will impose reciprocal tariffs to ensure U.S. exports are “treated evenly” by America’s trading partners. The markets again reacted negatively. While we don’t believe Trump is looking to start a trade war, this appears to be his strategy to push other countries into negotiations over their own trade barriers. Ultimately, we expect this approach to be successful, but in the meantime, the uncertainty it creates is weighing on both stock and bond markets. In our view, choppy’ is the best way to describe market conditions for the foreseeable future.

Treasuries Look Healthy

Newly minted Treasury Secretary Scott Bessent made no changes in the Treasury’s quarterly refunding announcement last Wednesday morning. He announced that President Trump and the Treasury were focused not on short-term rates, but on the 10-year Treasury yield. We think this is a good choice: stock prices and the long-term investment decisions of companies are more closely related to 10-year Treasury yields (and the longer-term rates in general) than to short-term rates. We expect Bessent to work to lower longer Treasury yields so that he can lock in lower yields as the administration tries to tame the deficit. The 10-year Treasury note responded well to this news.