Dear all,
Global equity markets saw a marked divergence in March, with markets trading at high P/E ratios such as U.S. and Taiwanese stocks seeing pullbacks, while European equities and Hong Kong’s Hang Seng Index posted robust gains, emerging as key destinations for capital inflows.
Meanwhile, currency and bond markets also reflected the trend of capital reallocation, with the U.S. Dollar Index retreating from its year-to-date highs and the 10-year Treasury yield also experiencing a decline. Notably, gold prices continued to hit new highs throughout the month, reflecting ongoing hedging demand against potential economic slowdown and policy uncertainty, as well as how the market is pricing in potential deglobalization risks, especially as Trump’s policies continue to dominate market sentiment.
These developments call for a reassessment of several key questions: How is Trump’s current policy agenda different from his previous term? Is he intentionally engineering a recession? Why has recession talk centered on the U.S. rather than the global economy? Or could the volatility simply be part of a healthy market rotation?
Below are my observations and analysis based on the latest economic and policy developments.
1. Key Evolution of Trump's Policy Agenda: From Short-Term Stimulus to Long-Term Structural Overhaul
A closer look at Trump’s recent statements and actions suggests a major shift in his second-term policy focus—significantly greater emphasis on the long-term structure of the U.S. economy. During his first term, Trump prioritized rapid economic stimulus, including large-scale tax cuts (through the TCJA), increased government spending, and deregulation, which successfully fueled short-term economic momentum but also rapidly widened the fiscal deficit, raising concerns over the sustainability of U.S. national debt for long-term investors.
In this term, we see a clear shift in policy direction—policy measures are no longer solely focused on short-term market performance, but on addressing three critical long-term structural issues facing the U.S. economy:
- Over-reliance on foreign capital with dollar-denominated assets fueled by persistent current account deficit;
- Fiscal deficit and national debt that continue to balloon in a post-ultra-low interest rate environment; and
- The accelerating trend of global de-dollarization.
Trump's seemingly erratic policies are fundamentally a structural response, aimed at restoring U.S. economic sovereignty to some extent while maintaining the dollar’s standing. Measures such as continued tariff tactics aimed at China and revitalizing American manufacturing, stricter fiscal discipline to restore confidence in U.S. Treasuries, and even proposals on a sovereign wealth fund, taxes on capital inflows, and immigration “gold cards” are all geared towards attracting capital back to the U.S. and stimulating investment, with the goal of rebuilding the long-term resilience of the U.S. economy.
The shift is also evident in the President’s rhetoric and approach. Unlike his first term, where policies immediately fueled market excitement (dealing out tax cuts but also increasing spending), this time, Trump is not rushing to appease investors, but instead emphasizes on the importance of “rebuilding the nation.” In a recent Fox News interview, he noted that the U.S. economy would see “a period of transition”, and in a statement at the White House on March 12, he also commented that, “Markets are going to go up and they’re going to go down. We have to rebuild our country.”
While this rhetoric shift will inevitably introduce short-term volatility, I believe it’s a beneficial step toward improving the structural health of the U.S. economy in the long run.
2. Soft Data vs. Hard Data: Confidence Slips, But Fundamentals Remain Strong
Of course, these shifts have also led to a noticeable divergence in the economic data since the new policies took effect, with the soft data (surveys and expectations) showing weakness while the hard data (actual economic activity) remains robust.
On the soft data front, the UMich Consumer Sentiment Index fell to 57.9 (prev. 64.7), the UMich long-term inflation expectations surged to a near 20-year high, and overall sentiment per the BofA Global Fund Manager Survey dropped sharply from 6.4 in February to 3.8, marking a seven-month low. These figures reflect heightened market vigilance over shifting policies, inflation risks, and trade-related uncertainty. In contrast, the hard data continued to reflect solid expansion: Nonfarm payrolls reached150,000 in February, with the government sector still adding 11,000 jobs despite the DOGE layoffs. Disposable personal income hit a record high, and the momentum in household spending remained intact. Manufacturing and service sector activity also held steady, showing no signs of significant cooling in the economy.
These ...
Already a subscriber? Click here to log in.
Full Access to Our Services
Comprehensive data at your service
with key indicators for investment insights
Exclusive flash reports
on key events and data
Create your own charts and analysis
including performance backtesting
Hub of professionals to engage
in meaningful discussions and insights
Subscribe to MM Max Annual today and unlock free access to the 2025 Q3 MacroMicro Economic Outlook livestream! Get expert insights, exclusive tools, and stay ahead with MM Max.
