Market Reaction to Tariffs Subdued, BMO CEO Says
Summary
- The market reaction to recent tariff announcements has been subdued, largely because these outcomes were already priced into bond markets.
- Corporate resilience has increased significantly; companies have spent the last year rebuilding supply chains to handle tariff-related volatility as "normal course."
- A critical bottleneck is emerging where "newest industries" (AI/Tech) are dependent on "oldest industries" (Metals/Mining) for power and infrastructure.
- Regulatory reform and expedited permitting (e.g., for copper mining) are becoming active, positive conversations in the US to address supply-side constraints.
Trade Ideas
The CEO notes a "confluence of two forces" where "the newest industries are literally dependent on the oldest industries." He specifically highlights the need to expedite licensing for projects like "the copper mine in Arizona" due to a "massive demand push" hitting a "bottleneck on the supply side." AI and data center expansion requires immense power and grid infrastructure, which is physically impossible without copper and critical minerals. The current supply is constrained by regulation. If the "positive developments" on regulatory reform occur as the CEO suggests, existing major miners (like Freeport-McMoRan in Arizona) will see volume and pricing power increase as they unblock supply to meet AI demand. Long Copper and Copper Miners as the physical derivative of the AI trade. Failure of regulatory reform to materialize; global recession dampening industrial demand.
He mentions "demand being driven by the air power" (referring to AI/Compute) and notes that the "global order [is] reorganizing" around this massive demand push. The digital economy is hitting physical limits. The "air power" of AI requires terrestrial power generation and grid modernization. This shifts value from pure software to the physical utilities and infrastructure providers (IPPs like Vistra or Constellation) that supply the electricity required for compute. Long Power and Grid Infrastructure providers. Regulatory caps on energy prices; delays in data center buildouts.
"The instability and the volatility... on tariffs have become a little bit more normal course... they've rebuilt supply chains... more stable than you might think." The consensus fear is that tariffs will disrupt earnings immediately. The CEO argues that corporations have already adapted ("priced in"), meaning the actual fundamental impact will be less severe than the headline risk suggests. This supports holding US industrial and broad equity exposure rather than panic selling on tariff news. Watch/Hold US Corporates; do not short solely based on tariff headlines. Tariffs escalating beyond the "priced in" levels (e.g., universal 20%+ across all partners).
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