Current and future trends in the United States market – summarized in an easy-to-understand way

The middle class has collapsed, and globalism has created extreme polarization. Returning to old-fashioned America and genuine nationalism was the pledge Trump spoke of even before the election, in other words, America First and MAGA.

What to do for that

・Tax cuts
This has already passed as a large tax cut bill. It has been a pledge since before Trump’s election.

・Tariff policies
It is thought to be meaningful to cover the reduced tax revenues with tariff income. In the 1920s, the United States had high tariffs but no taxes. Globalism advanced the seemingly beautiful word “free trade,” symbolizing “internationalization,” and as a result America entered an era of polarization (the same is true worldwide).

・Rate cuts
Currently, the remaining national debt issuance in the United States is over $36 trillion, which is equivalent to about 120% of GDP. Modern Monetary Theory (MMT) says a government cannot go bankrupt issuing bonds in its own currency, but that presumes GDP growth. Right now, the United States is paying interest on existing debt by issuing new bonds, i.e., continually refinancing. If refinancing is to continue, interest rates must be low. Therefore rate cuts are absolutely essential for the United States. Despite such strong indicators being released, considering that FOMC members mentioned the necessity of rate cuts at this month’s FOMC meeting, it is highly likely that the recent indicators are not reliable.

Summary

1. They want tax cuts, but require revenue to replace them

2. Implement tariff policies as the substitute revenue

3. Tariff policies presuppose that the United States is an attractive country as an exporter
If the United States economy is weak, its value as an export destination would decline, making tariff negotiations more difficult.

4. They want rate cuts, but if rate cuts lead to a recession, tariff negotiations could become harder.
5. They need to show that the U.S. economy remains sturdy until the last moment, and as a result

the stock market continues to rise, and tariffs and tax cuts are proceeding as expected for now
but after tariffs are implemented, signs of an economic downturn are likely to appear all at once
with high probability.

Regarding future market trends

Recently, U.S. economic indicators have shown strong numbers that diverge from American public perception. In short, the recent economic figures cannot be trusted. The reason is, as noted above, that the U.S. economy must be strong before tariffs are activated. And once tariffs are enacted, there is no doubt a rate-cut phase must follow.
In other words, U.S. stocks are in a situation where a major correction or even a drop exceeding 20% could occur.
As for exchange rates, Japan’s tariff is around 15%, among the lowest levels worldwide, but several conditions are imposed in return. One of these conditions is a possible rise in Japanese interest rates, so since August, a scenario of declining U.S. stocks and a weaker dollar is highly plausible.

※ Explanation for beginners
The United States wants to reduce its trade deficit = a weaker dollar is ideal
If the interest rate gap with other countries narrows, it is possible to induce a weaker dollar.
Although the U.S. is losing some power, it is still undeniable that the dollar remains the world’s reserve currency. Its strength lies in the ability to lift or lower the value of the dollar as needed. In the past, the United States has guided the dollar lower, such as during the Plaza Accord in 1985, to reduce its trade deficit.

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