Fiscal Worries and Tariff Shockwaves Keep Global Investors on Edge

📺 Tokenized assets, SWIFT integration, and ETFs the risks that could derail the bull case

Mounting U.S. fiscal concerns and a fresh wave of tariffs from the Trump administration are reshaping the global investment landscape, driving debate over the durability of corporate earnings and the resilience of equity markets.

Goldman Sachs Chief Economist Jan Hatzius expects U.S. GDP to expand by roughly 1% this year, weighed down by rising tariff rates and signs of stagnating consumer spending. Core inflation is projected to climb above 3%, an uptick Hatzius believes will further pressure household demand. “It’s already on the soft side,” he said, noting that such stagnation “doesn’t often happen outside of recession.”

The U.S. fiscal outlook is adding to the unease. Goldman Sachs Vice Chairman Rob Kaplan warns that with deficits near $2 trillion — around 6% to 7% of GDP — at or near full employment, the federal government is in historically unusual territory. The resulting upward pressure on long-term Treasury yields is leading some investors to question whether the 10-year and longer-dated securities still serve as the safe-haven assets they once were.

While longer-maturity Treasuries face headwinds, Ashok Varadhan, co-head of Global Banking & Markets at Goldman Sachs, sees opportunities. He argues that higher yields have restored appeal for private investors, potentially attracting fresh capital. He also predicts a steepening yield curve as shorter-term rates fall with expected Fed easing.

The tariff front is adding another layer of complexity. A new Citi Research note led by equity strategist David Groman, highlights the White House’s sweeping country-specific measures — including a 39% levy on imports from Switzerland — as a significant headwind. Citi estimates the measures could shave about four percentage points off 2025 MSCI AC World earnings growth, with Switzerland’s healthcare-heavy market particularly exposed.

For the U.S., Citi projects that effective tariff rates of 15% or more could deliver a roughly 5% hit to S&P 500 earnings. However, the damage is likely to be uneven, with some sectors facing sharper margin pressures than others. Japan, meanwhile, may see a softer impact thanks to reduced auto tariffs, while emerging markets face potential 5 to 6 percentage point earnings downgrades.

Despite the macro clouds, Varadhan remains “super bullish” on equities, citing deregulation tailwinds and the transformative potential of AI adoption. Kaplan also sees short-term growth support from fiscal stimulus, even as longer-term debt sustainability questions loom.

With tariffs recalibrating trade flows, deficits challenging bond markets, and inflation testing consumer resilience, investors are navigating a market where policy and politics are as decisive as earnings reports. For now, the consensus among top strategists is clear: volatility may be unavoidable, but opportunities remain for those willing to embrace the turbulence.