A shift in U.S. economic policy under a potential second Trump administration could trigger a temporary slowdown in financial markets, according to Raj Shah, Chief Investment Officer at Principal Global Investors. The warning comes amid speculation over new trade tariffs and fiscal measures that may affect investor sentiment.
- Raj Shah, CIO at Principal Global Investors, warns of a 'moment of pause' due to potential Trump-era economic policies.
- Proposed 25% tariffs on Chinese imports could trigger sector-wide earnings downgrades of up to 15%.
- S&P 500 experienced a 7% correction in the past six months; Treasury yields up 120 bps since late 2024.
- Emerging market currencies may face depreciation if trade disruptions escalate.
- Hedge funds cut long-duration bond exposure by 22% since October 2025.
- Corporate bond spreads have widened by 35 basis points amid rising risk aversion.
Raj Shah, Chief Investment Officer at Principal Global Investors, cautioned that a reemergence of Donald Trump’s signature economic agenda could introduce a 'moment of pause' in global capital markets. While not forecasting a crash, Shah highlighted the uncertainty surrounding proposed policies such as broad-based tariffs on imports, increased defense spending, and revisions to corporate tax incentives. Key indicators suggest heightened volatility may follow: the S&P 500 has already seen a 7% correction in the past six months amid geopolitical tensions, while Treasury yields have risen by 120 basis points since late 2024. Should Trump's proposed 25% tariff on all Chinese goods be implemented—echoing his 2018 trade actions—equity valuations across technology and consumer sectors could face downward pressure, with sector-specific earnings estimates downgraded by up to 15% in some models. The impact would extend beyond Wall Street. Emerging market currencies, particularly those tied to export-driven economies like Vietnam and Mexico, could experience sudden depreciation if trade flows are disrupted. Corporate bond spreads have widened by an average of 35 basis points since Q3 2025, signaling growing risk aversion among institutional investors. Market participants are adjusting positions accordingly. Hedge funds have reduced exposure to long-duration bonds by 22% since October 2025, while asset managers are increasing allocations to gold and defensive sectors such as utilities and healthcare.