I would say the range is pretty large currently:
- If this level of uncertainty only lasts a few weeks, probably the economic effects are very mild, and we will have a slower but still positive growth rate in the economy of ~1-2% (This is what is currently expected from most economist). Companies will most likely only pause investment and hiring temporarily while waiting for a bit more clarity
- If however, the uncertainty remains for months without end, especially if negative news continues to mount from the gov and data, I could very well see this becoming a recession (-1% - 0% real GDP). In this case, companies could most likely stop permanently some investment for 2025 because they cant forecast clear growth, and consumers will become more defensive
Right now I am mostly focused on this kind of data:
- Businesses sentiment and guidance (earnings calls, business sentiment surveys) is probably much more important than consumer sentiment at this point. Companies are the ones that will dictate first where investment and labor market go
- Signs in hard data that the economy is slowing more than expected, and aligning with the very negative soft data, because for now while GDP for Q1 is expected to be very low, the economy is still growing a bit → earnings, spending, labor market, Inflation, credit spreads
- The uncertainty index to realize how sustained it is becoming
The current expectations I have been reading is that after April 2 2025, uncertainty will start to come down because Trump’s plans will be clearer, and companies can start to plan around that again, but I am not really that sure about that, because negotiations (retaliations) will still most likely come, that could still change the picture as we move forward, and we could also start to see first economic effects of policies until now (eg. on CPI)
I think this quarter’s earnings will be especially important, especially related to companies guidance.