The statistical stock market performance models I report on here have done pretty well since 2007 forecasting normal market activity, but they cannot predict the unpredictable. The models forecast what the stock market usually does in situations when usual market factors operate. In no world is the instant imposition of massive market tariffs “usual”. In fact, a good test of when things return to something like normal will be when these market forecasts become accurate again. That is months away.

In the meantime, there are some guesses that seem to make sense.

Trump cannot back down, at least not until the next round of tax cuts has been approved. The tariff program is central to the Trump push to keep income taxes low and to further reduce taxes for the very wealthy. Thanks to his 2017 round of tax cuts, but also because of the continuing cost escalation of Social Security, Medicare, and Medicaid, the federal budget deficit has grown to a dangerous and unsustainable level — over 6% of GDP. Without the revenue of tariffs the low-tax regime will fall apart. The Trump/Musk budget cutting chain saw can only yield minor savings — they don’t go after the real problems. So, the Trump regime must pretend to practice fiscal responsibility until Congress has approved his new round of tax cuts. The new authorization could come within weeks, so there is a chance that Trump could declare victory and relent at that time. But…

Other nations are just starting to react. Trump’s tariff announcement yesterday was merely the opening salvo in what is likely to become an extended trade war. Individual nations and groups of countries like the European Union have yet to announce their counter-measures. In the case of the EU, in particular, this presents a very special opportunity to strike against American hegemony in high technology services. I think the ‘Magnificent 7’ high tech stocks should be fearful. Europe has wanted to strike back for decades.

Actual economic impacts have not yet hit. Trump simply made an announcement. It will take days, weeks, and months before prices rise, and supply chains become significantly disrupted. It will be June before corporate quarterly reports show ANY impacts. At best, significantly increased US industrial production will not occur for well over a year. It takes years to plan and build a new factory. There is a time lag before economic pain will be felt and a much longer period before any potential benefits are realized. Much pain before any gain. Much continuing uncertainty.

There will be many twists and turns along the way. Over the coming months the focus of attention of this saga will shift. Like any war there will be numerous battles, victories and losses. Translated to the stock market, there is near-certain high volatility and a net trail of losses. Most wars these days are won by attrition — maximization of losses. “Buy the dip” has been replaced by “sell the rally”.

This is not over. In other instances of massive exogenous stock market disruption (1987, 2007, 1998, 2020-2022) a stock market crash continues until it has obviously ‘gone too far’. In most cases that will be a total market capitulation of 30% to 60% loss. This avoidable disaster of crudely implemented tariffs has only just begun. After a real crash will be a great time to invest in stocks!