Forget The Stock Market's Tariff Turmoil. Trump's Next 100 Days Could Bring A Bullish Trifecta That Reignites Demand, Expert Says

The S&P 500 has stumbled to a 0.3% decline year-to-date, while gold has surged 22%—its best start since the Gerald Ford administration—a stark divergence reflecting investor anxiety over geopolitical tensions and slowing growth. Yet Bank of America’s chief strategist Michael Hartnett sees a silver lining: President Trump’s next 100 days could unlock a “bullish trifecta” of policies that reignite demand for risk assets. This trifecta—lower tariffs, lower interest rates, and lower taxes—could counteract soft economic data and revive investor confidence.

The Trifecta: How It Could Work

1. Lower Tariffs
   Hartnett identifies a U.S.-China tariff rollback as the most critical component. Current tensions have driven the S&P 500’s underperformance versus global peers. A meaningful reduction in tariffs—such as unwinding Biden’s solar panel duties or revisiting Section 301 levies—could ease supply chain bottlenecks and corporate profit pressures.

The administration has already signaled flexibility. A leaked memo from the Office of Management and Budget suggests prioritizing trade normalization with Beijing, despite hawkish rhetoric on semiconductors. If realized, this could lift industrial stocks like Caterpillar (CAT) and Deere (DE), which have lagged due to trade uncertainty.

1. Lower Interest Rates
   The Federal Reserve’s pivot to rate cuts is central to Hartnett’s vision. Treasury yields have already fallen sharply since Trump’s inauguration, with the 2-year yield dropping 70 basis points to 3.8%. A decline to below 4% would signal a sustained shift toward monetary easing, boosting equities.

The Fed’s March meeting minutes hinted at patience, with inflation cooling to 3.2% year-on-year. A “lower for longer” rate environment could benefit rate-sensitive sectors like real estate (XLRE) and utilities (XLU), though it risks stoking inflation if demand rebounds too quickly.

1. Lower Taxes
   While not explicitly detailed yet, Trump’s tax agenda could include extending the 2023 “tax holiday” for repatriated offshore profits or accelerating corporate tax cuts. Historically, tax reforms like 2017’s TCJA boosted S&P 500 earnings by ~10%, lifting financials and energy stocks.

The administration’s focus on Project 2025—a Heritage Foundation blueprint—includes fiscal austerity, but tax cuts for corporations could align with its “pro-growth” rhetoric.

The Backdrop: Why Now Matters

Hartnett’s bullish thesis hinges on three conditions:
- Earnings resilience: Analysts forecast 2025 S&P 500 earnings growth of 5%, though risks remain from a 1.5% GDP forecast for 2026.
- Labor market strength: April’s 177,000 jobs added—above the 150,000 consensus—suggests recession fears are premature, buying time for policy action.
- Capital expenditure boom: AI spending is projected to hit $320 billion in 2025, offsetting weakness in traditional sectors like autos and housing.

Risks to the Trifecta

• Geopolitical blowback: China may resist tariff concessions unless paired with U.S. semiconductors sanctions relief.
• Legal challenges: Trump’s executive orders face lawsuits over the Impoundment Control Act (e.g., the frozen federal grants) and constitutional limits on security clearance revocations.
• Market skepticism: The S&P 500’s 100-day underperformance suggests investors are awaiting proof of policy execution, not just promises.

What to Watch

• Trade talks: A U.S.-China meeting in June could signal tariff rollbacks.
• Fed’s next move: A July rate cut would validate Hartnett’s “lower rates” thesis.
• Tax reform signals: Look for legislative proposals by late summer aligning with Project 2025’s fiscal priorities.

Conclusion: Trifecta or Mirage?

Hartnett’s “bullish trifecta” could deliver a 15–20% S&P 500 rally by year-end if all three policies materialize. Current data supports this:
- The U.S. dollar’s 7.6% decline year-to-date—its worst start since Nixon—reflects easing rate expectations.
- Bond markets are pricing in a 3.5% 10-year yield by year-end, a level last seen in 2021.
- Energy and industrials—sectors sensitive to trade and rates—have outperformed the S&P by 4% and 6%, respectively, since Trump’s inauguration.

However, execution risks loom large. The administration’s track record on Project 2025—e.g., stalled NOAA dismantling and legal battles over gender-affirming care—suggests policy implementation will be uneven. For now, investors should heed Hartnett’s advice: “Stay BIG, sell rips.” Favor bonds and international equities until the trifecta becomes reality, not just rhetoric.