A Tariff-Led Global Recession to Revive US Market Dominance: Analyst

The world is on edge ahead of President Donald Trump’s highly-anticipated reciprocal tariffs, but US investors could benefit from one of the worst-case scenarios.

With Trump set to unveil his tariff plan Wednesday afternoon, growth fears are top of mind for economists and investors. Amid the calls for higher tariff rates and low growth have been predictions for America’s long-running dominance of global markets to end.

However, a recession would actually boost the US as a haven for investors, market commentators say.

If a tariff-led recession drags down global economies, the US could regain its reputation as the premier international market. That’s according to veteran analyst Ed Yardeni, who noted several reasons US markets would outperform in a broader slowdown.

“We are maintaining our Stay Home (versus Go Global) bias, recommending that managers of global portfolios overweight US stocks,” he said.

Trump’s so-called “liberation day” has sent recessionary angst soaring as investors brace for a potential trade war to strain economic growth.

Much remains unknown before the 4:00 p.m. ET announcement, but the scope, size, and duration of the new levies could make or break Wall Street sentiment as the second quarter kicks off. Around $33 trillion in global trade is at risk, according to Bloomberg Economics, posing a direct threat to US and foreign GDPs.

Stagflation fears have picked up for the US, and Yardeni sees a 45% chance of such a scenario playing out this year. At the same time, the American economy has positives that other nations don’t share — making it a relative outperformer in a cooldown.

“The US is at full employment, is a net energy exporter, and has a dynamic and flexible services-driven economy,” he outlined. Meanwhile, US debt dynamics, though a concern, don’t compare to China’s situation.

A tariff-induced US recession would hammer foreign exporters, some of which are already struggling. That includes Germany and the UK, the latter of which seems to already be dealing with stagflation.

Finally, the Federal Reserve has more room to cut interest rates compared to foreign central banks. Officials do this to spur economic activity.

Yardeni’s outlook contradicts what others have been predicting as US stocks lag international peers. So far this year, the idea of US market exceptionalism has waned as investors have questioned S&P 500 valuations and the dominance of US mega-cap tech.

Instead, European and Asian markets have won out. While the S&P 500 has dropped 4.4% year-to-date, the Euro Stoxx 600 index is up over 5%.