“We are never, ever, ever getting back together.” – Taylor Swift
Tariff War 2.0, or Territory War 1.0 if you prefer, is in full swing and has potential to cause significant near-term market disruptions. While we typically preach that politics matters less to the markets than to us personally, that was before politics was wielding such a heavy hand regarding regulations, taxation, tariffs, and the global world order. 2026 has started with rapid-fire policy-by-tweet, of which we are left attempting to decipher what is inflated hyperbole and what may be a real priority to be implemented. One of our themes for 2026 is “don’t fight the admin,” like the adage “don’t fight the Fed,” it means if policy is going to change market dynamics – don’t fight the direction that policy is flowing.
Policy that we feel is a real administration priority:
- Greenland/Donroe Western Hemisphere focus
- 10% tariff on multiple European countries effective on February 1st, increasing to 25% on June 1st
- Venezuelan oil development by US firms
- New tariffs under different authorizations if US Supreme Court invalidates current legal rationale
- Housing affordability – mortgage interest deflation
Policy that we feel is less likely to be fully implemented:
- 10% credit card interest rate cap- possible EO but dead in Congress. Being pitched as a Presidential “expectation” or “demand” but minimal details are known and may violate the Dodd-Frank Act
- Full healthcare overhaul – possible, but likely piecemeal. Drug prices or direct payments in focus
- Defense contractors’ suspension of dividends/buybacks
- Institutions out of single-family homes – very complex to implement. Where to draw the regulatory line?
Historically, policy error (fiscal or monetary) is the #1 bull market killer – so this cannot be ignored. While we entered this year bullish and expecting volatility, we also were not expecting a full repositioning of trading partners and 100 year+ alliances. Greenland/breakup with Europe would be one of the largest global political shifts in the post WWII era with wide reaching ripple effects and implications. These actions may easily outweigh the stimulus being added via M2 monetary supply increases, tax refunds, higher consumer spending, AI driven productivity, margin expansion, and fundamental earnings growth. While we expect some of this policy rampage to be bluster and Trump’s “maximum pressure” approach, the likelihood that at least some of this policy is going to stick in some form or fashion is very high. Defense attorneys deploy this approach as well, as in a negotiation if you start from irrational/maximum demands, you likely get more than if you start in the middle with reasonable demands. Maximum pressure is one of Trump’s core edicts; you can read all about it in his 1987 book Art of the Deal, or review other large policy rollouts the last 12 months. We are still early in the maximum pressure phase for Greenland, which typically follows this process: Huge announcement → big penalties/pressure → public pressure/commentary → announcement of negotiations → announcement of progress → some sort of deal reached. Markets don’t like the first part of this negotiation cycle, but do tend to rally when progress is announced or a deal is made. So, for now, we are defensive and expect high volatility and sharp selloffs.