When Markets Lose Their Compass: Tariffs, Uncertainty, and the Dealmaking Freeze

Tariffs, Tumult, and Tension: Wall Street’s Waning Influence Under Trump 2.0

Last week, some of the most powerful figures in global finance—Jamie Dimon (JPMorgan), David Solomon (Goldman Sachs), Brian Moynihan (Bank of America), and Charlie Scharf (Wells Fargo)—convened in Washington, only to collectively admit they’d had little to no direct contact with President Trump since the early pandemic days. At a time of heightened market stress, global dislocation and trade disruption, the usual symbiosis between Wall Street and Washington appears to be eroding.

The current administration’s abrupt imposition of sweeping tariffs—ironically branded “Liberation Day”—has thrown markets into disarray, extinguished deal activity, and reignited recessionary fears. This marks a stark contrast to previous crises (COVID-19, GFC 2008), where policymakers leaned heavily on banks for real-time macro feedback and market psychology insights. Now, those same banks are relegated to the sidelines.

The Market Impact: Deals on Ice, Forecasts in Flux

The economic fallout has been swift and sharp. According to sources including Goldman Sachs and Morgan Stanley, M&A pipelines have frozen, with over $10bn in pending transactions paused across several bulge brackets. A regional bank merger reportedly collapsed last week. Market participants are increasingly reluctant to transact amid uncertainty over tariff scope and duration. Several corporates that were buyers at early-April valuations are now withdrawing altogether—or demanding price renegotiations.

Goldman Sachs has updated its recession probability forecast from 20% to 45%, while Morgan Stanley has warned of a deeper, prolonged downturn driven by trade policy missteps. Equity markets have corrected significantly, with the S&P 500 down ~7% since the tariff announcement and the FTSE 100 retreating ~5%. Volatility (VIX) has spiked to levels not seen since mid-2023.

Private equity, too, is in a holding pattern. One PE executive described re-running portfolio stress scenarios for the third time this quarter. Deals are not being signed at last month’s multiples—nor should they be.

My View: Strategic Drift and Political Myopia

From an investment standpoint, the erosion of dialogue between Wall Street and the White House is more than a symbolic concern—it’s a structural risk. Markets abhor uncertainty, and uncertainty becomes chaos when key economic actors aren’t even at the table. In 2008 and 2020, coordinated action between policymakers and financial institutions underpinned the response playbook. Today, we are flying blind.

For institutional investors, this raises several flags:

• Dealmaking: DCF models are losing relevance without clarity on trade and fiscal outlook. Multiples must compress.

• Credit markets: Loan books are vulnerable to a cyclical downturn. CLO spreads have widened ~35 bps in the last fortnight alone.

• Equity allocations: The “buy-the-dip” trade may be dead until tariff trajectories become clearer. Valuation repricing is far from complete.

Anecdotes like the JPMorgan strategist using stuffed penguins as “tariff-hit trade reps” would be comic relief—if the economic consequences weren’t so grave.

Conclusion: Defensive Positioning in an Era of Policy Instability

While some volatility-linked trading desks will benefit in the short run, most of the street is bracing for revenue headwinds. There’s a non-trivial risk that a populist-driven, protectionist policy shift triggers the kind of feedback loop last seen in 2018—except this time, without the benefit of central bank easing firepower or fiscal stimulus tailwinds.

My outlook? In the absence of strategic clarity from the White House and with C-suite confidence slipping, I believe defensive sector rotation, elevated cash allocations, and increased scrutiny of cross-border exposures are prudent for now. The most valuable asset in this market may well be patience.