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Moody's Warns: Tariffs and Deportations Threaten Stock Market Stability

AInvestWednesday, Dec 4, 2024 8:56 pm ET
4min read


The stock market's record-breaking run could be facing a sharp reversal, according to Moody's. The firm's chief economist pointed to two looming risks that could spark a serious correction: Trump's proposed policies of tariffs and mass deportations. Mark Zandi, the chief economist of Moody's Analytics, cautioned that while markets may trade "sideways" in the near term, investors should stay vigilant with risks on the horizon in 2025.

Trump's proposed tariffs on US imports from China, Mexico, Canada, and BRICS nations could lead to higher prices as businesses pass the cost of the duty on to consumers, potentially raising inflation and causing interest rates to trend higher. Economists have warned that broad-based tariffs could exacerbate inflationary pressures, unlike Trump's previous targeted tariffs that had minimal impact on prices. Zandi expressed concern that these lofty valuations and prices could unravel in a correction, with significant macroeconomic implications.

Mass deportations, another of Trump's proposed policies, could lead to significant labor market disruptions and wage inflation, according to Zandi. He warned that deporting millions of immigrants could cause job sectors with high immigrant worker percentages, like construction and agriculture, to face severe labor shortages. This could pressure employers to raise wages to attract talent, fueling inflationary pressures and potentially leading to a correction in the stock market.

While risks of a stock drawdown are growing, Zandi said he largely expected markets to trade "sideways," and for stocks in particular to remain "flattish" for the next three to five years. Corporate earnings growth, meanwhile, could clock in somewhere between 4%-6% next year, he predicted. Wall Street is generally expecting a positive, but more muted year for stock returns in 2025, with Goldman Sachs and Bank of America predicting a 10% gain for stocks next year.



These proposed policies pose significant risks to supply chains and corporate earnings. Steep tariffs could disrupt supply chains, increase production costs, and negatively impact corporate earnings. Mass deportations could hit job sectors heavily reliant on immigrant labor, creating labor shortages and pressuring employers to raise wages, further disrupting supply chains and negatively impacting corporate earnings.

Investors should be mindful of these potential threats to the stock market and consider adjusting their portfolios accordingly. Diversifying investments and maintaining a balanced portfolio, combining growth and value stocks, can help mitigate risks. Additionally, understanding individual business operations and valuing companies with robust management and enduring business models can be crucial in navigating these uncertain times.



In conclusion, investors should be aware of the potential risks that Trump's proposed policies, namely tariffs and mass deportations, pose to the stock market. While markets may trade "sideways" in the near term, these risks could spark a serious correction if not addressed properly. By staying informed and making strategic adjustments to their portfolios, investors can better prepare for these potential challenges and maintain a balanced investment approach.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.