Trump restarts the tariff stick, but the market is "unmoved"; US stocks and bond markets perform strongly in the first half of the year

According to Zhitong Finance APP, despite a series of historically rare tariff policies implemented by U.S. President Trump in the first half of 2025, the U.S. stock and bond markets have performed well, seemingly not overreacting to these "dramatic changes." Investors remain vigilant, paying attention to the potential economic lag effects these policies may bring in the coming months.

On Monday, the U.S. stock market closed higher, while the bond market showed little volatility. Previously, Trump announced on his social media platform Truth Social that a 30% tariff would be imposed on the European Union and Mexico starting August 1. This move raised market concerns, but from the trends, investors seem to have chosen to wait and see for now.

David Kelly, Chief Global Strategist at JP Morgan Asset Management, pointed out in a research brief released on Monday: "The new government has implemented extreme policy adjustments, which theoretically should push up inflation and suppress economic growth. However, as of now, employment and inflation levels are almost on par with the beginning of the year, while U.S. stocks and bonds have recorded significant gains."

Data shows that the S&P 500 index has risen 6.6% year-to-date, closing on Monday just 0.2% below the historical high set on July 10. The iShares Core U.S. Aggregate Bond ETF (AGG) has achieved a cumulative return of 3.2% year-to-date. The strong performance of these two asset classes has boosted market confidence.

Kelly noted, "The U.S. market has become more 'earthquake-resistant' amid years of erratic Washington policy environments. Although the policy shocks seem strong, the actual impact on the economy and markets has been minimal so far."

When Trump announced the "Liberation Day Tariff" on April 2, the market experienced a brief shake-up, but as the White House postponed the tariffs for negotiation reasons, the market quickly recovered.

Entering July, Trump continued to release multiple tariff notification letters to various governments on social media, reiterating that a new round of trade barriers would be implemented starting August 1. Affected countries include Brazil, Canada, the European Union, Mexico, and copper import products, with a dense policy rhythm.

Kelly analyzed that although the policy environment is tight, the AI boom, declining gasoline prices, fiscal stimulus, and expectations of regulatory relaxation constitute a counterbalancing force, driving asset prices higher.

However, he also reminded that the lag effects of policies have not fully manifested. For example, the overall impact of U.S. tariffs on fiscal revenue is expected to become apparent only in November. One reason is that although the tax increase was announced on April 2, goods leaving the port before April 5 were still subject to the original tax rate, resulting in a time lag in actual tariff collection.

At the same time, the 90-day reciprocal tariff exemption window ended on July 9, after which Trump announced additional tariffs on more countries, creating greater uncertainty for businesses and investors.

Investors are currently closely watching whether retail companies will pass on higher import costs to consumers. The June Consumer Price Index (CPI) to be released on Tuesday will be a focal point for the market. Kelly pointed out that this data may only reflect the price impact of the first wave of tariffs, with most inflation effects expected to gradually emerge in the coming months.

Additionally, Kelly warned that the Trump administration's measures to tighten immigration policies and federal layoffs may also drag down consumption, corporate behavior, and even the job market in the future He wrote: "Consumers, businesses, and the market often react too slowly in the early stages, followed by potential excessive corrections. Risks such as soaring inflation, a sudden increase in unemployment rates, and a sharp decline in the stock market are still brewing, especially when the market continues to underestimate the far-reaching effects of these policies."

Therefore, Kelly advises investors to maintain a balanced asset allocation to cope with the gradual impact of policies introduced in the first half of the year in the second half