Investor sentiment fades as uncertainty around U.S. economic policy under President Donald Trump’s second term rises. A recent note from UBS strategists suggests that the lack of a clear economic strategy raises market volatility and impacts institutional investor confidence.

Defining Trumponomics This Time

UBS Head of Asset Allocation, Jason Draho, captured the current confusion:

“This is the trillion-dollar question, and honestly, I am not sure.”

While Trump’s first term focused on a growth agenda featuring corporate tax cuts, deregulation, and infrastructure spending, the current version of Trumponomics appears fragmented.

The most pressing issue? Trade tariffs.

Trade Policy’s Central Dilemma

Trump’s renewed emphasis on reciprocal tariffs—more extensive than before—lacks clear objectives. Analysts question whether the goal is to balance trade, reduce deficits, or gain leverage in certain geopolitical contexts.

“Without understanding what matters most, it’s challenging to know what deals would be satisfactory,” Draho remarked.

This uncertainty increases volatility across risk assets, leaving investors uncertain about long-term expectations.

Internal Contradictions of Policy

UBS pointed out various contradictions within current U.S. economic policy:

• Deficit Reduction vs. Tax Cuts: Trump aims to curb the federal deficit but proposes tax cuts funded by tariff revenues that could widen budget gaps.

• Reshoring vs. Tariff Revenues: Efforts to return manufacturing to the U.S. reduce imports, thus lowering tariff income.

• Energy Policy vs. Tariff Impact: Plans to enhance domestic energy production may face cost increases for raw materials due to tariffs.

These conflicting goals indicate a lack of internal policy consistency.

Market Response: Rising Risk Premiums

The result of this policy uncertainty has manifested across financial markets:

• Equity markets have accounted for rising recession risks.

• Bond yields have decreased, coincidentally with the U.S. dollar, an unusual trend indicating rising risk premiums—not just growth concerns.

UBS believes this demonstrates a market struggling to predict future policy actions.

Conflicting Economic Views

Two opposing ideological forces appear in Trump’s second term:

1. MAGA-style populism: Nationalist, protectionist, interventionist

2. DOGE economics: Focused on deficit reduction and small government

So far, neither ideology has emerged dominantly, leaving markets uncertain.

While temporary tariff delays and product exemptions, especially in tech sectors like semiconductors, reveal pragmatism, these measures will not restore investor confidence without broader clarity.

Conclusion: Clarity Essential for Stability

Draho provides a pressing assessment:

“Hope is not an investment strategy; investor confidence will remain low and markets volatile until clarity and consistency in Trumponomics surface.”

Until a clearer policy framework arises, investors might limit exposure to risk assets and prioritize protecting capital over growth.

Additional Resources

• Economics Calendar – Track significant U.S. data releases.

• Balance Sheet Statements – Evaluate U.S. fiscal health.