Investor sentiment is weakening as uncertainty around U.S. economic policy under President Donald Trump’s second term continues to mount. According to a recent note from UBS strategists, the absence of a coherent economic roadmap is contributing to heightened market volatility and eroding confidence among institutional investors.

What Exactly Is “Trumponomics” This Time?
Jason Draho, Head of Asset Allocation at UBS CIO Americas, summed up the current confusion:

“That’s the trillion-dollar question, and my honest answer is that I’m not really sure.”

While Trump’s first term was defined by a pro-growth agenda centered on corporate tax cuts, deregulation, and infrastructure spending, the current iteration of Trumponomics appears fragmented and contradictory.
The most pressing concern? Trade tariffs.

Trade Policy: The Central Friction Point
Trump’s renewed push for reciprocal tariffs—more expansive than before—lacks a clearly articulated goal. Analysts are uncertain whether the objective is to balance trade, reduce deficits, or gain leverage in specific geopolitical relationships.

“Without knowing which consideration is more important, it’s hard to know what will constitute satisfactory deals,” Draho noted.

This ambiguity has intensified volatility across risk assets. Without a defined strategy, investors are struggling to price in long-term expectations.

Contradictory Policy Signals
UBS highlights several internal contradictions within current U.S. economic policy:

Deficit Reduction vs. Tax Cuts: Trump has pledged to rein in the federal deficit, but proposed tax cuts financed by tariff revenue could lead to wider budget gaps.

Reshoring vs. Tariff Revenues: Efforts to bring manufacturing back to the U.S. reduce imports—alongside the tariff income meant to fund other programs.

Energy Policy vs. Tariff Impact: Plans to boost domestic energy output may be offset by higher costs for raw materials due to tariffs.

These conflicting goals suggest a lack of internal policy cohesion.

Markets React: Risk Premiums Rise
The result of this policy fog has been visible across financial markets:

Equity markets have priced in increased recession risk.

Bond yields have dropped alongside the U.S. dollar, an unusual pairing that typically signals rising risk premiums—not just growth concerns.

UBS believes this reflects a market struggling to anticipate future policy moves.

Competing Economic Ideologies
Two ideological forces appear to be at play in Trump’s second term:

MAGA-style populism: Nationalist, protectionist, intervention-heavy

DOGE economics: Deficit-conscious, small government conservatism

So far, neither approach has taken clear precedence, leaving markets in limbo.
While temporary tariff delays and product exemptions (notably in tech sectors like semiconductors and smartphones) suggest a degree of pragmatism, these moves are unlikely to restore investor confidence without broader clarity.

Conclusion: Clarity Needed to Restore Market Stability
UBS’s Draho offers a sobering assessment:

“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. The sooner that comes—starting with tariffs—the better the market outlook.”

Until a clearer policy framework emerges, investors may continue to reduce exposure to risk assets and prioritize capital preservation over growth.

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