The Dow Jones Industrial Average (DJIA) stepped into fresh weekly highs on Friday after investors shrugged off the second-worst print from the University of Michigan's (UoM) Consumer Sentiment Index on record. Market sentiment remains on the high side as traders hope for further clarity on trade from the Trump administration and a continued easing of President Donald Trump's tariff policies.

The UoM's Consumer Sentiment Index sank to 50.8 from 52.2 as consumers' outlook for economic activity, income, and employment continues to decline. Investors were hoping for an uptick in consumer sentiment, but the average consumer apparently disagrees with Wall Street. Consumer 1-year and 5-year inflation expectations also rose, climbing to 7.3% and 4.6% respectively.

While consumers tend to be terrible at forecasting their economic futures, tariff concerns have been playing havoc on consumers' feelings about the economy. With inflation expectations continuing to climb, it could pave the way for "profit-led inflation", or businesses taking the opportunity to raise prices in the face of consumers expecting rising prices. US inflation data came in far better than expected this week, helping to assuage market fears that lopsided US trade policies could shatter the US economy's still-strong position. However, investors habitually understate the amount of time it takes for government policies to show up in headline data, and tariffs are likely no exception.

According to estimates from the Fitch Ratings agency, the US's headline Effective Tariff Rate has reached 13% following the Trump administration's fun new toy of using tariffs to try and control global trade. Prior to widespread tariffs, the US's ETR was 2.5%. The US's ETR specifically on China remains above 30% even after the walkback of President Trump's unhinged 145% import taxes.

The Trump administration has developed a pattern of threatening deeply damaging policy changes before walking them back, temporarily suspending them, or outright canceling them at the eleventh hour. Market perception broadly anticipates a continued clawback of Donald Trump's policy strategies; however, bullish animal spirits are likely to remain tepid until the Trump administration delivers some solid results and provides some clarity from the many trade agreements that White House staff have been insisting are due to be announced any day now for the last two months.

Source: Fxstreet