Trump Trade War: S&P 500 Eyes 7000 Despite Tariffs and Economic Headwinds
News Summary
U.S. President Donald Trump's tariff strategy has redefined global trade, imposing tariffs ranging from 10% to 41% on 69 trading partners, including 100% on branded pharmaceutical imports and 25% on heavy-duty trucks, aiming to boost domestic production. More tariffs are set to take effect, while a tariff truce between the U.S. and China has been extended through early November. Despite weak labor market data showing a surprise job loss of 32,000 in September and a downward revision for August, raising recession concerns, loose monetary policy continues to support equity valuations. The S&P 500 displays a bullish technical setup, consolidating near 6,720 after breaking the 6,000 neckline in June 2025. A decisive break above this resistance could push the index towards 7,000. The disconnect between worsening fundamentals and strong equity performance is largely driven by expectations of aggressive Fed rate cuts, providing a tailwind for risk assets. Markets are expected to remain highly sensitive to policy headlines and economic data.
Background
In 2025, U.S. President Donald Trump's re-election signifies the continuation of his "America First" and protectionist trade policies. The article, published in October 2025, is set against the backdrop of multiple rounds of U.S. tariffs implemented against various trading partners, with further duty hikes planned for early 2026, aimed at repatriating manufacturing. Concurrently, the U.S. labor market is showing signs of weakness, with an unexpected decline in September job numbers. However, the Federal Reserve's accommodative monetary policy, coupled with market expectations for further rate cuts, continues to inject liquidity into equity markets, creating a divergence between economic fundamentals and stock performance.
In-Depth AI Insights
What are the true strategic objectives behind Trump's trade war? - The Trump administration's trade war extends beyond merely correcting trade deficits or protecting specific industries; its deeper motivation lies in fundamentally reshaping global supply chains towards "onshoring" and "friendshoring" for critical sectors like pharmaceuticals and heavy industry. This is a strategy of national security and economic sovereignty, using high tariffs to compel companies to repatriate or relocate to allied nations, thereby reducing dependence on potential adversaries. - In the long term, this move likely aims to weaken the industrial bases of major trading partners like China and serve as leverage in broader geopolitical and security negotiations with other nations (such as Canada, whose PM is meeting Trump), rather than purely economic ones. The goal is to forge a global economic order more aligned with U.S. national interests. How is accommodative monetary policy distorting market signals, and how should investors respond? - Despite weakening economic data, the Federal Reserve's sustained liquidity injections and expectations of rate cuts are artificially inflating risk asset prices, creating a "liquidity-driven bull market." This leads to an underpricing of recession risks and potentially overstates corporate earnings prospects, especially against a backdrop of rising tariff costs. - Investors should be wary of this disconnect and avoid blindly chasing short-term gains. A defensive strategy is advisable, emphasizing companies with strong cash flow, low debt, and pricing power, which are better positioned to withstand tariff costs and economic slowdowns. The continued strength of safe-haven assets like gold signals deeper market uncertainties, warranting attention. Is the S&P 500's push towards 7000 sustainable, and what are the underlying risks? - The S&P 500's upward momentum is currently driven primarily by technical factors and liquidity expectations, rather than robust macroeconomic fundamentals. If the Federal Reserve fails to deliver aggressive rate cuts as anticipated, perhaps due to inflation pressures or financial stability concerns, or if labor market deterioration accelerates beyond expectations, the market faces significant correction risk. - Furthermore, an escalating trade war will inevitably erode corporate profit margins, particularly for multinational corporations reliant on global supply chains and exports. Should the negative impacts of supply chain disruptions and rising costs eventually translate into weaker earnings reports, even an accommodative monetary environment may not sustain high equity valuations long-term. 7000 could represent the peak of a "liquidity bubble," not a signal of fundamental economic recovery.