Investing.com -- Investor uncertainty over the direction of U.S. economic policy under President Donald Trump’s second term is growing, with UBS strategists saying the lack of clarity is driving market volatility and eroding confidence.
In a note published this week, Jason Draho, Head of Asset Allocation at UBS’s CIO Americas, attempts to define “Trumponomics” and concludes that even those in Trump’s own administration are struggling to articulate a coherent economic vision.
“That’s the trillion-dollar question and my honest answer is that I’m not really sure,” Draho wrote, referring to the note’s central question: “What exactly is Trumponomics?”
While Trump’s first term featured a broadly pro-growth agenda with tax cuts, deregulation, and higher spending, the current approach appears more fragmented and harder to pin down. “Such ambiguity is creating confusion and anxiety that’s weighing on financial markets,” Draho said.
The central point of friction so far and the key driver behind recent market weakness is tariffs. The new administration’s reciprocal tariffs are more sweeping than before and lack a clearly stated purpose. It’s unclear whether the aim is to level the playing field on trade or to eliminate trade deficits altogether.
“Without knowing which consideration is more important, it’s hard to know what will constitute satisfactory deals,” Draho noted.
There are also contradictions between stated goals. Trump has pledged to reduce the fiscal deficit but is simultaneously pursuing policies—such as potential tax cuts funded by tariff revenues—that could widen it.
Similarly, efforts to increase domestic energy production may be undermined by higher input costs from tariffs. “Both goals can’t be achieved at the same time,” the strategist warned, pointing out that lower imports from reshoring would reduce tariff revenue.
“That will lead to larger fiscal deficits, especially if the expected tariff revenue is used to pay for larger tax cuts now,” he added.
Given all the uncertainty, markets have reacted accordingly. Risk assets have priced in a higher probability of recession, while both bonds and the dollar have sold off—an unusual combination typically signaling rising risk premiums rather than deteriorating growth expectations alone.
According to UBS, the policy stance remains ideologically muddled. The early days of Trump 2.0 presented two competing visions: a populist, America First-style “MAGA” approach, and a fiscally conservative, small-government “DOGE” framework. But neither has yet prevailed.
Delaying some tariffs and carving out exemptions for tech products like semiconductors and smartphones may hint at a more pragmatic turn. However, it would likely take more than that to boost investor sentiment.
“Hope is not an investment strategy, and investor confidence will remain low and markets volatile and likely range-bound until there’s some clarity and consistency to Trumponomics,” Draho wrote. “The sooner that comes, starting with tariffs, the better the market outlook.”