Trump put might have a lower strike than the market thought: BofA

Investing.com -- Bank of America analysts said in a note Monday that while the market correction prompted some policy moderation, the broader capital shift away from the U.S. may continue. 

“The Trump put might have a lower strike than the market thought, but it seems to be there,” they noted, referencing the recent imposition and swift removal of tariffs on Canada and Mexico after a significant decline in stocks.

The report highlights growing downside risks to economic growth forecasts, driven by heightened uncertainty. 

“We are closely following marginal data due to the recent worsening of the uncertainty shock,” BofA analysts wrote.

Geopolitical realignment is also said to be shaping economic decisions, with security concerns overtaking efficiency in supply chain planning. 

“Bye bye efficiency, hello national security,” the bank stated, pointing to Germany’s recent fiscal stimulus as an example of shifting government priorities. 

Meanwhile, BofA notes defense spending trends are diverging, with Germany ramping up its budget while the U.S. considers cuts.

On the Federal Reserve, BofA notes a “bimodal” outlook, where the central bank is expected to hold rates steady amid mixed economic signals. 

“If the Fed cuts, it will probably bring rates well below neutral,” the analysts said, adding that a soft landing appears unlikely.

BofA explains that labor market data showed resilience but also signs of strain, with a rising unemployment rate. 

Meanwhile, inflation progress remains limited, with BofA forecasting February core CPI to rise 0.3% month-over-month. “CPI data should reinforce our view that inflation progress has stalled,” the firm concluded.