Policy Implementation Drives Market Focus Beyond Directional Bets

Key Quotes

"So, the first thing I'd say is clients are definitely interested in our more bullish outlook, in particular for the U.S. equity market. And normally we would start these conversations by talking through the policy variables, right? Immigration, deregulation, fiscal, and trade policy. But I think now we're actually post peak uncertainty for those variables, and we're talking through how the policy choices that have been made interact with the outlook."

Ariana Salvatore indicates that client interest has shifted from predicting policy direction to understanding the impact of already-made policy decisions. Salvatore explains that this represents a change from previous discussions, which focused on the uncertainty of future policy.

"With tariffs, for example, you could make a credible argument that they weren't going to increase at all. But you could also make a credible argument that the average effective tariff rate was going to go up to 50 or 60 percent. While the tariff story certainly isn't over going into 2026, it certainly feels like we've landed in a place that's more range bound."

Michael Zezas highlights that the range of potential outcomes for tariff policy has narrowed significantly compared to the previous year. Zezas notes that while tariffs have increased substantially, they have not reached the most extreme projections, suggesting a more stable, albeit higher, equilibrium.

"So, I would say the clearest catalyst is the impending decision from the Supreme Court on the legality of the IEEPA tariffs. I think on that front, there are really two things to watch. The first is what President Trump does in response. Right now, there's an expectation that he will just replace the tariffs with other existing authorities, which I think probably should still be our base case."

Ariana Salvatore identifies a key event that could influence trade policy: a Supreme Court decision on the legality of certain tariffs. Salvatore explains that investors should consider how President Trump might react to such a decision, with the base case being a replacement of tariffs using existing executive powers.

"So, as we've said, one of the more reliable historical priors is that it's difficult to legislate during election years. That's a function of the fact that lawmakers just aren't in D.C. as often. You also have limited availabilities in terms of procedure itself because Republicans would have to probably do another Reconciliation Bill unless you get some bipartisan support."

Ariana Salvatore points out the procedural challenges of passing legislation during election years. Salvatore explains that reduced legislative presence in Washington D.C. and the need for specific procedural tools like Reconciliation Bills limit the likelihood of new laws being enacted.

"So, the way I've been thinking about it is: No clear new policies that someone has to account for coming out of the midterms. However, we definitely have to pay attention. There could be some soft signals there about political preferences and resulting policy preferences that might become live a couple years down the line after we get into the 2028 general elections -- and the new power configuration that could result from that."

Michael Zezas suggests that midterm elections are unlikely to introduce immediate, significant policy changes. Zezas advises investors to monitor these elections for subtle indications of future political and policy directions that may become more relevant in subsequent election cycles.