Market Outlook: The Trump Economic Playbook & What It Means for Traders

“You don’t need to be a political junkie to see what’s coming.”

As we look toward the second half of 2025, post election-year policy shifts are coming into focus—and the return of President Trump could bring a familiar economic playbook back into action.

This isn’t about political sides. It’s about positioning for what’s next. If we’re right about the direction of fiscal and monetary moves, the market could be gearing up for a July summer rally.

Let’s break it down:

🧠 Trump’s Economic Thesis (What We Expect to See)

1️⃣ Push for Rate Cuts ASAP

Despite criticizing rate cuts during the Biden term, Trump is now incentivized to push for lower rates as well.
The problem? Powell’s Fed isn’t moving—yet. CPI and PCE have softened, but the Fed remains hawkish. Trump can’t fire Powell, and can’t force the FOMC’s hand—thanks to Supreme Court precedent. Still, the pressure is building, and markets know it.

2️⃣ Big, Bold Tax Cuts

The 2017 tax cut was the cornerstone of Trump’s first term—and now is part 2: which gave us a furious rally in 2017
But here’s the kicker: according to the CBO, this would balloon the deficit over time, especially with rates still elevated. That adds pressure on bond markets and future refinancing.

3️⃣ Tariffs as a Revenue Offset

Tariffs are a double-edged sword. Yes, they generate revenue. But they also drive higher costs for consumers and elevated inflation risk.
The original idea? Use tariffs to offset tax cut impacts on the federal budget. But rising prices and softening global demand could expose this as a short-term fix with long-term costs.

4️⃣ Market Liquidity Hinges on the Tax Bill

Here’s where things get interesting:
If the tax bill passes, it becomes an instant liquidity injection into markets—faster than any rate cut could deliver.
But it’s not guaranteed. Watch the headlines. Tax reform = stock rally. No tax reform = stall out.

📍 So Where Does That Leave Us?

Right now, the market is waiting for a positive catalyst.

📈 Earnings have been strong. Guidance has been better than feared—even without tax cuts.

💰 $9+ trillion is still parked in money markets. The second the Fed pivots and cuts, that cash could rotate into risk assets chasing yield.

Here’s how we rank the potential catalysts that could trigger a rally:

🔑 The 3 Key Catalysts (In Order of Importance)

1. Tax Cuts Passed – The #1 liquidity driver. Instant tailwind for equities.
2. Fed Rate Cut – Slower to take effect, but powerful. July is still on the table.
3. Tariffs Cancelled or Frozen – Especially helpful for emerging markets and high-beta U.S. stocks reliant on foreign materials.

🎯 Positioning: What We Like

If any of these catalysts come through, expect rotation into:

• Small Caps – Highly sensitive to rate and tax policy
• High-Beta Stocks – More upside when liquidity returns
• Bearish on Gold – Rising real rates and stronger dollar could cap gold’s run short term

Bottom Line:

You don’t need to follow every political twist and turn to understand what matters to the market. Follow the money.
We still believe at least one of these major catalysts hits in July, setting up a powerful summer rally.

Stay nimble. Stay informed. Cheers & Happy Trading — Carlos G GAR Capital

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