Donald Rumsfeld used that phrase more than 20 years ago to describe elements of the Global War on Terror that his Defense Department was neither aware of nor understood but could still become enormously impactful. And he was roasted for it.

But even if his delivery was characteristically clumsy, there’s no denying that it’s become one of the most useful phrases in the rich dictionary of English idioms. It’s particularly useful today now that another Donald who resides in Washington, D.C. has upended the global economic order by introducing a set of tariffs that markets were evidently entirely unprepared for.

In some ways, that’s kind of on markets. Anyone who doubted President Trump’s resolve wasn’t paying very close attention back in early March when he told a joint session of Congress that “there will be pain, but it won’t last very long” as a way to describe an economic plan that featured aggressive tariffs as its centerpiece. It’s also a message the President has repeated several times since then, including as recently as this morning when he compared recent market convulsions to gulping down castor oil to rid your body of toxins or enduring chemotherapy to exorcise cancer: “I don’t want anything to go down,” (a reference not to the impacts of castor oil on your digestive system but to markets, specifically in Asia where Monday’s session was particularly brutal). “But sometimes you have to take medicine to fix something.”¹

So, we’ll take the tariffs that were announced during Wednesday’s Liberation Day ceremony from the White House Rose Garden as a “known known”: Something that markets were aware of and understood — or at least should have been aware of and understood — but nonetheless created a visible impact in the form of a dramatic sell-down in stocks.

If Wednesday’s announcement had stopped there, so too might have the selling have stopped there. But this brings us to our first two “known unknowns” related to the recently-announced slate of Trump Tariffs: Namely, how big the tariffs would be and how long they would last. Here, we can probably give markets the benefit of the doubt — even if you followed the President’s cues and accepted as fact that tariffs were indeed on the way, it was much harder to get your head around specific details like those.

Of course, we now know the answer to the first one: A 10% minimum tariff reportedly to be applied to essentially all imports into the U.S., with an upward-sliding scale based on how wide a country’s bilateral trade deficit with the U.S. currently is.² That was clearly more severe than many investors had assumed, and we can probably attribute some of the knock-on selling that happened last week to this deeper-than-expected hit to global trade.

But that second bit — the “how long will the tariffs be in place?” part — is still something of an unknown, even if at this point, I think it’s safe to assume that the answer is probably “longer than the market thought.” At a minimum, anyone who assumed that Wednesday’s announcement was merely a negotiating tactic to get other countries to the bargaining table has now been at least partially relieved of that notion. And for what it’s worth, that dynamic was also on full display this morning, when markets rallied more than 8.5% (yeah, eight-and-a-half percent!) in the space of about 20 minutes when a White House official was quoted as saying that the Administration was considering a 90-day moratorium for everyone but China. But then markets almost as quickly retraced about half of those gains when the White House explicitly denied the rumor. That’s a clear indication of how desperately investors want the answer to the “how long?” question to be “not very.”

But a partial answer is still better than no answer at all, and markets are now in the process of coming to terms with the idea that the Trump Tariffs are more than mere deal-making and arm-twisting and could therefore be around for a while. Investors are also getting used to the idea that some of the side effects from all this economic chemotherapy might be intense nausea and vomiting in the form of an honest-to-goodness economic recession. (As an aside, recessions tend to occur when conditions are ripe for a downturn and some exogenous shock acts as catalyst to suddenly bring it to life — kind of like tossing a lit cigarette into a bone-dry field of prairie grass. A full discussion of this thought lies a little beyond our scope here today, but the model seems to fit reasonably well — we’ll revisit it if and when the economy actually tips over into recession.)

So, for now we’ll simply add that one – whether the U.S. (and potentially the global) economy will dip into recession this year as a result of U.S. trade actions — as another “known unknown.” And then there’s the biggest known unknown of all: Namely, how will the Trump Tariffs impact fundamentals at the individual company level? That’s particularly relevant to markets given how stretched equity market valuations were coming into Wednesday’s announcement. Sure, three days of dramatic selling have brought those valuations down to more reasonable levels, but that won’t matter a whit if company fundamentals take an even bigger hit. Said another way, if profit margins collapse and corporate earnings plummet, those newly at-least-somewhat-more-reasonable valuations will look stretched all over again as the denominator of the ubiquitous price-to-earnings ratio (a commonly used yardstick of stock valuations) suddenly erodes out from underneath its numerator.

We wrote about that concept earlier this month as a companion to our second quarter outlook and found that some sectors of the U.S. equity market are somewhat more exposed than others. Suffice to say we found fewer reasons to be concerned about companies and sectors that have relatively less dependence on foreign trade for either inputs or sales and enjoy relatively strong pricing power than those who have neither of those attributes.  But like all good market strategy work, this was an informed guess at best — the actual impacts of all this mess won’t be known for weeks, months or even years as the drama unfolds in board rooms, supervisor’s offices and kitchen tables around the country and around the world.

Which brings us to our last category of concern — the one Donald Rumsfeld so eloquently introduced to the world decades ago in his speech about the war on terror — the unknown unknowns. What are those, you might ask? Well, if we knew the answer to that they would be known unknowns, wouldn’t they? But at this point it’s probably safe to say that what concerns markets most is the absolute unpredictability of all this. What, for example, will be the impact of the Trump Tariffs on the geopolitical sphere, where an active imagination and even partial knowledge of some of the hairiest global goings-on can conjure up all sorts of imagined metastatic activity that make higher-for-longer (something as damaging with regard to tariffs as it is for interest rates and Fed policy,) seem mild in comparison. Or, on the more optimistic side, is it possible that all of this somehow creates positive inertia for markets and the economy, at least in select pockets? That’s an unknown unknown that all of us would obviously prefer to any one of the fever-dream scenarios that are now keeping many of us awake at night.

And that’s kind of the point: Markets can cope with and adjust to uncertainty if they know what it is and where it’s coming from, but it’s far harder to adjust for things you aren’t aware of and don’t understand. But when you recognize that even this last category — the unknown unknowns — eventually become known unknowns (then, at some point, simply “knowns”), you can start to see a light at the end of all this. Economies are, after all, very flexible and durable in the long run, as are the markets that represent them. In the meantime, though, I’m afraid that we’re stuck imagining more than knowing — a situation that will almost certainly keep things unsettled for at least a little while longer.

This is the point where I would ordinarily spend another six- to eight paragraphs talking about last week’s macro data, but frankly it doesn’t really matter — with one possible exception: Payrolls. Somewhat unique among macroeconomic variables, non-farm payrolls are something that isn’t falling — at least not yet. That matters, and in not necessarily a good way because a still-healthy labor market like the one we read about in last Friday’s Employment Situation Report from the Bureau of Labor Statistics will act as a constraint against potential Federal Reserve (the Fed) action.³ At a minimum, February’s better-than-expected creation of 228,000 new jobs for the U.S. economy gives the Fed the luxury of time, something Chairman Powell recognized on Friday as the market was melting down when he told a group of financial writers and editors that he and his Fed are still in “no hurry” to cut rates again, and that he would prefer to “make certain that a one-time increase in the price level (related to tariffs) doesn’t become an ongoing inflation problem” before resuming his loosening campaign. That effectively removed, at least for the time being, the possibility of a “Fed put” to replace the “Trump Put” that the President’s unwavering commitment to his tariffs so thoroughly removed from last week’s equation.

But as I’ve tried to point out above, all this uncertainty will eventually become certain, and even if we don’t necessarily like where it all ends up, at least we (and the markets) will have enough clarity to start moving forward under a new set of rules. That allows us to yet again invoke the immortal words of Winston Churchill’s War Department (and, for the select few who have read The Hitchhiker’s Guide, Douglas Adams): Keep calm, carry on, and don’t panic.

What to watch this week

It might sound like I’m being flippant, but not a whole lot matters this week other than where the tariff debate goes from here. If the President relents and reduces the scope, severity or duration of the program announced last Wednesday, markets will likely rally in relief like they did this morning in response to the rumor (later refuted by the White House) of a 90-day pause. On the other hand, any suggestion that Wednesday’s tariff schedule might be broadened, extended or otherwise enhanced would very likely have the opposite effect. But at least in my view, the scenarios most likely to influence markets will revolve around the nature and extent of retaliation by our trading partners. Watch specifically for how the European Union and China respond to get a sense of where things might evolve. Suffice to say tit-for-tat retaliation would not likely be received well in Washington.

So, tariff talk will very likely dominate the conversation until at least Friday when big banks like JPMorgan, Bank of New York Mellon and Wells Fargo kick off first quarter earnings season. Banks are in the unique position of seeing trends in both the real- and financial economies up close and personal, and bank executives like JPMorgan’s Jamie Dimon have never been shy about sharing their views. Markets will parse banks’ forward-looking guidance at least as closely as backward-looking results for clues about where markets and the economy might be headed from here. Watch things like delinquency rates and loan-loss provisions for a clear view into how trends might evolve. The ongoing tariff debate only makes that spotlight shine brighter.

For a more complete list of things that probably won’t matter until tariff clarity starts to evolve, see the table above. We’ll get two reads on inflation in the form of Thursday’s Consumer Price Index and Friday’s Producer Price Index. Also relevant to the inflation discussion will be Friday’s Consumer Sentiment update from the University of Michigan, which lately has been dominated by frequent upgrades of how dire consumers think the inflationary environment is likely to become. It probably goes without saying that one of the primary mechanisms through which tariffs are translating into market volatility is through the assumed impact on prices, and each of these releases could provide insight.

Watch also for Wednesday’s minutes of last month’s Fed meeting, where Committee Members chose to leave rates alone, slowed the pace of quantitative tightening and allowed the word “transitory” to creep back into the discussion of how durable inflation might ultimately prove to be. Details concerning how hotly trade- and fiscal policy are being debated behind closed doors at the Fed could be particularly enlightening.