BCA Research’s Marko Papic: If tariffs deemed illegal, the bond market needs to reconsider its OBBBA approach

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Historical data indicates geopolitical risks could actually contribute to growth, productivity, and asset returns rather than posing threats to the market, according to Marko Papic, BCA Research macro and geopolitical strategist.

During a CNBC interview, Papic said markets (SP500 [https://seekingalpha.com/symbol/SP500]), (DJI [https://seekingalpha.com/symbol/DJI]), (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]) appear unconcerned about recent updates on trade [https://seekingalpha.com/news/4491380-trump-to-appeal-court-ruling-on-tariffs-as-soon-as-wednesday], and the government shutdown.

“I think that the reason that the market is not worried is that bond yields (US10Y [https://seekingalpha.com/symbol/US10Y]), (US2Y [https://seekingalpha.com/symbol/US2Y]), (US30y) have been steadily coming down since the ‘One Big, Beautiful Bill’ was passed,” he explained. “I do think that the relationship between yields and equities is really all that you need to focus on.”

The strategist emphasized that tariff revenue plays a crucial role in maintaining market stability. If tariffs were deemed illegal and removed, the bond market would need to reconsider its approach to the OBBBA, potentially causing yields to rise, he said. “Without a lowering of the log in of the yield curve, you’re not going to have equities do well.”

In addition, fiscal policy remains central to economic health as Papic noted the economy needs consumers to transition “from a cash driven world to one of leverage.”

He dismissed the focus on Federal Reserve cuts as “kind of irrelevant,” instead stressing that “what’s required is long end of the curve to be satiated with a sane fiscal policy.”

Despite positive prospects for U.S. equities, Papic delivered a surprising investment recommendation. U.S. is “probably the worst place to invest,” he said, urging investors to place allocations in international stocks as a hedge.

While acknowledging U.S. equities could still rise, he warned about potential currency weakness, advising U.S.-based investors to look abroad: “You should be seeking external non-U.S. equity markets because it gives you non-U.S. dollar exposure.”

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