A recent stock market selloff has highlighted concerns about investor confidence in Washington’s policy direction, with tax cuts potentially not enough to lift spirits. Lisa Shalett, Chief Investment Officer at Morgan Stanley, stated that the pace and sequencing of policy reform have impaired confidence, impeding growth forecasts.
The Republican base case for extending existing tax cuts is estimated to cost $4.5 trillion over the next decade, more than double proposed spending cuts. This raises concerns about limited genuine progress on the 10-year debt and deficit forecast.
Investors hoping for growth from new cuts, such as the repeal of the SALT cap or exemptions on tip income, may also be disappointed. Shalett notes that many proposals fall into high fiscal multiplier categories, which are regressive policies with negative impacts unlikely to be offset by positive effects.
The administration’s plan to close the deficit gap through tariffs is also uncertain. Fully implemented tariffs could generate $120 billion annually, but this figure is based on a maximalist scenario and may not hold up in reality.
Shalett advises investors to stay selective and consider being opportunistic amid recent turbulence. She points to stable growers in software, healthcare, and media, as well as financials and regional diversification in EM, Japan, and Europe. However, she warns that it’s too early to declare the “all clear,” as the market will likely remain volatile and idiosyncratic.
Source: https://www.forbes.com/sites/danrunkevicius/2025/03/30/trumps-tariffs-arent-the-only-problem-for-the-stock-market