Investors are losing trust in President Donald Trump's policies after entering 2025 with the unfounded belief that his plans would drive market gains, Bob Doll suggested Monday.
The remarks by Doll, Crossmark Global Investments' CEO and chief investment officer, came in his weekly newsletter, released shortly before the stock market opened and extended its selloff.
Despite the recent market correction, equities remain expensive by standards of the past 30 years, "highlighting that they remain vulnerable to further de-rating in the event of a full-fledged growth scare or something more severe," he said.
"Earnings downgrades are inevitable as companies and analysts factor in trade tariffs, although it is impossible to gauge the magnitude until the tariff details are clearer," Doll explained.
Elevated price-to-earnings ratios suggest that a period of de-rating is likely in the next 10 years, weighing on stock prices and total returns, he said.
Doll noted that the U.S. economy was in reasonably good shape entering the year, with no meaningful fundamental cracks or excesses that would create significant vulnerabilities.
Trump's decision to embark on a trade war is the main reason that the U.S. economy is set to slow meaningfully and may even head toward recession, he said.
"Investors and businesses came into this year with misplaced optimism that President Trump (empowered by the Republican electoral sweep) would promote pro-growth policies and fuel higher risk asset prices," according to Doll.
Instead, since taking office, Trump has "effectively sidelined the U.S. exceptionalism theme, triggered a significant stock market correction, severely impaired what was a strong U.S. economy, and is approaching the brink of a 'crisis of confidence,'" he said.
"A sustained recovery in stock prices beyond a near-term bounce relies on a clarification/reduction of his trade policy before further damage occurs to consumer, business, and investor sentiment," Doll added.
"With hindsight, President Trump’s conflicting mix of economically supportive policies (tax cuts and deregulation) and stagflationary isolationism (widespread tariffs and deportation/anti-immigration) created confusion at best, and economic damage at worst. The market reaction has been clear that investors are losing confidence in Trump’s policies," he added.
Tariffs increasingly appear to be an ideological issue for Trump, boosting their likely endurance despite associated economic pain, according to Doll, who added that there's room for negotiations, with some exceptions.
"Barring a U-turn by President Trump, we expect other countries to retaliate, which will hurt both U.S. and global growth," he wrote.
The retaliation is likely to morph from a trade war to one in which foreign governments target sales of U.S. companies that will cause the most equity market damage, and sell their U.S. Treasurys, Doll predicted.
The U.S. corporate sector will likely be a casualty of Trump's tariffs and isolationist policies that "likely mark the end of an extraordinary era of profit growth and financial strength. The U.S. corporate sector has been a huge beneficiary of globalization over the past several decades," Doll said.
Illustration: Chris Nicholls/ALM; Courtesy photo
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