ZEA - BMO MSCI EAFE Index ETF

As each day passes, we grow ever more concerned that tariffs are becoming a more mainstream concept at all government levels in the United States.

Indeed, there is a compelling reason for Republicans in both chambers of Congress to consider tariffs to solve an important problem. Namely, that the ability to extend tax cuts while trimming the bloated budget deficit looks increasingly untenable without tariff-related revenues.

In this note, we’ll quickly rehash the current state of affairs when it comes to the budget resolution process that is underway in both the House of Representatives and the Senate. Then we’ll go over why it may become difficult to extricate tariffs from tax cuts over the coming months – even if there are additional tariff delays from the White House. Finally, we offer three takeaways for our readers as well as ideas to take advantage of an environment where tariffs become a more permanent fixture.

In the markets, the theme of ‘American exceptionalism’ has received a lot of air play of late – and for good reason. Over the past two years, the benchmark S&P 500 has increased by at least 25%. In fact, since the end of 2018, the index is up by close to 160% with an average annual return of 18.6%. With all due respect to the other large developed markets, it’s only in the U.S. where an investor could have hoped to sniff numbers like that.

And to be sure, investors have been voting with their feet. More than any other time in modern history, the U.S. market is benefitting from an influx of foreign capital. The impact has been profound, with market valuations now at levels comparable to the throes of the Covid-19 shock as well as the ‘tech bubble’ at the turn of the century. Within leading global equity indices, the U.S. accounts for almost 70% of the weight—well over double where things stood a few decades ago.

All prices, returns and portfolio weights are as of market close on September 30, 2024, unless otherwise indicated.