US Recession Likely If Trump’s Tariff Measures Persist, Says TRUST MF’s CIO
The rising specter of stagflation in the United States—characterized by sluggish economic activity coexisting with high inflation expectations—could trigger another 5–10% correction in global equity markets, warns Sandeep Bagla, Chief Investment Officer at TRUST Mutual Fund. Speaking in the backdrop of mounting trade tensions and recent policy actions by the US administration under Donald Trump, Bagla said that the probability of a US recession is higher this time, given the inability of the Federal Reserve to repeat past bailouts via aggressive liquidity injection.
According to Bagla, the combination of economic stagnation and persistent inflation creates a uniquely difficult environment for both policymakers and investors. “This time, the Fed cannot print its way out,” he emphasized, referring to the shrinking headroom for monetary expansion amid high prices.
5–10% market correction possible if US stagflation deepens
High US recession probability due to low growth and high inflation expectations
Fed less likely to intervene aggressively via liquidity measures
Heightened risk aversion to persist unless policy clarity improves
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Recession Risks Rise as Trade Wars Escalate: Fed May Be Powerless
A traditional recession is often defined as two consecutive quarters of negative GDP growth, but Bagla pointed out that even without technical recession, the confluence of rising joblessness, lower real incomes, and falling industrial activity could mirror the same macroeconomic stress. He emphasized that Trump’s rigid stance on tariffs may well exacerbate this downturn.
With no substantial signs of reversal in the US tariff trajectory, Bagla believes the policy rigidity could inflict long-term structural damage. “Trump seems to have reached a point of no return. Any large-scale rollback appears unlikely,” he said.
US likely to see months of economic weakness and inflationary pressures
Trump administration’s tariff rigidity raises long-term structural concerns
No room for Fed-style bailouts, unlike previous cycles
Global economic shocks may be deeper and more prolonged
Tariff Shock to Reshape Global Supply Chains as Trade Tailspin Unfolds
Bagla noted that while countries historically manage trade frictions through a combination of tariffs, quotas, and licensing in a balanced ecosystem, a one-sided, large-scale tariff imposition is fundamentally different and far more damaging. He expects a significant medium-term reshaping of global supply chains if the current policy environment remains unchanged.
The imposition of high tariffs by the United States—particularly on key industrial and consumer segments—could create months of stagnation in trade flows as multinational corporations reassess the viability of existing supply routes and production strategies.
Global supply chains risk long-term realignment
One-sided tariff shocks to cause inactivity and logistical uncertainty
Short-term trade equilibrium likely to be disrupted
Major global players to recalibrate operations amid rising protectionism
Investment Strategy: Allocate 50% to Safe Income Assets, 50% to Quality Equities
In terms of portfolio positioning, Bagla recommends a balanced and disciplined asset allocation approach, suggesting investors divide their holdings equally between income-generating instruments and high-quality equity assets. He specifically points to bonds, REITs, fixed income mutual funds, and InVITs as prudent avenues during uncertain times.
While acknowledging that equity markets remain volatile and reactive to global shocks, Bagla maintained that market corrections often present better long-term entry points. He advised investors to “keep the powder dry” and re-enter equity markets when valuations become more reasonable.
50% allocation to safe income assets like deposits, REITs, bonds
50% allocation to equity mutual funds for long-term tax-efficient growth
Equity market unpredictability warrants caution and discipline
REITs and InVITs offer stable income and inflation protection
Further Correction Likely Amid Global Volatility
Bagla reiterated that the likelihood of a further 5–10% correction remains high, especially if the US economy veers toward stagflation and uncertainty continues to spook investors. “Markets are vulnerable to violent price swings when growth expectations are unhinged by exogenous shocks,” he warned, noting that equity exposure should be managed carefully in the short term.
He emphasized the need to avoid panic-driven decisions and adhere to a long-term allocation plan. “Asset allocation needs to be personalized and followed irrespective of market turbulence,” Bagla said.
Short-term volatility likely to persist
Asset allocation discipline key to weathering market cycles
Investors must avoid reactive decision-making
Further correction hinges on persistence of stagflation fears in the US
