UJ
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In his initial tenure at the White House, President Donald Trump was intensely focused on the flourishing stock market. Even minor market achievements were hailed with celebration. When investors expressed concerns about Trump’s policies, he tended to reverse course.
The narrative has changed dramatically during Trump’s second term.
Gains following the election have quickly diminished. U.S. stock prices have plummeted, and faith in Trump’s economic strategy has eroded, leading to increased frustration over the chaotic trade situation.
“The market is rejecting Trump’s policies. Investors are not convinced that this will usher in a prosperous era,” remarked Ed Yardeni, a veteran of Wall Street and president of Yardeni Research.
However, Trump has, at least for now, refused to yield.
His ambitions to increase tariffs remain steadfast, along with his commitment to drastically reduce government expenditures and implement mass federal layoffs. Officials within Trump’s administration have largely dismissed the rapid 10% decline in the S&P 500.
Investors have arrived at a troubling conclusion: This time, Trump might tolerate greater market suffering.
“Trump seems indifferent to the stock market’s performance,” Yardeni stated, indicating this poses a challenge for investors who now realize Trump may not be bluffing regarding tariffs.
During Trump’s first term, investors believed in a “Trump Put” — the notion that if the markets fell below a particular threshold, the White House would alter its stance to stabilize stocks. This potential for a policy shift was thought to mitigate market losses.
“Currently, no such Trump Put exists. In fact, it appears that Trump’s policies may be undermining the economy,” Yardeni commented.
Just last week, the Federal Reserve lowered its growth forecast for 2025, signaling concerns over rising inflation and a weakening job market.
Keith Lerner, chief market strategist at Truist Advisory Services, expressed that investors are apprehensive about Trump’s current agenda involving extremely high tariffs, deregulation, and low oil prices.
“We are in the midst of an experiment. And there’s a lack of confidence regarding how this will unfold,” Lerner added.
It’s important to note that presidents shouldn’t rely solely on market feedback. What benefits Wall Street isn’t always advantageous for Main Street.
Additionally, the stock market is notoriously unpredictable. Investors often concentrate on immediate profits, neglecting longer-term challenges. (Consider how the market reacts following strong job reports, either negatively or positively.)
Furthermore, the vast majority of stocks are owned by wealthier households, implying that a soaring stock market could widen the gap in wealth inequality.
Officials in Trump’s administration frame the current market difficulties as a short-term challenge versus potential long-term benefits.
“I’m not concerned about market fluctuations. In the long run, with appropriate tax policies, deregulation, and energy security, the markets will thrive,” stated Treasury Secretary Scott Bessent during a recent appearance on NBC News’ “Meet the Press.”
Bessent even referred to stock market corrections as “healthy” and “normal” – especially in comparison to a constant upward trajectory.
This perspective holds some truth. Market corrections do occur periodically. It’s wiser to let overheated markets cool down naturally rather than face a steep decline.
Think about the sharp contrast between Trump’s first term and the current one.
Markets soared following Trump’s victory in November 2016, continuing as he initially concentrated on pro-business initiatives.
Tariffs only emerged in 2018, after Trump implemented significant tax reductions for corporations. The S&P 500 did not face a major downturn until February 2018.
In contrast, during his second term, Trump appears to focus on cutting government expenditure, mass deportations, and imposing substantial tariffs that Federal Reserve officials believe will likely exacerbate inflation.
Investors are worried that these import duties will keep interest rates elevated for an extended period, dampen business investments, and negatively impact profits. March is set to be the S&P 500’s third month of losses out of four.
Tax reductions may eventually occur – but not just yet.
First comes what Trump has labeled Liberation Day.
This term refers to April 2, the day he has pledged to implement reciprocal tariffs on U.S. trading partners.
There is considerable uncertainty regarding what this will entail – and that uncertainty is contributing to market volatility.
Trump mentioned to reporters on Friday that there will be “flexibility” regarding reciprocal tariffs, though he did not clarify what that would mean in practical terms.
“Labeling it Liberation Day doesn’t fill me with confidence,” Yardeni remarked.
Some investors are concerned that Trump may not be understanding the concerns they’re expressing. This could further feed the market’s response.
In the 1990s, Yardeni coined the term “bond vigilantes” to describe bond market investors who reacted to poor policy decisions in Washington by selling U.S. debt.
Yardeni now observes a similar dynamic unfolding in the stock market.
“If investors in the stock market feel that their warnings about potential recession-causing policies are disregarded, you could witness even more significant selling pressure in an effort to grab Washington’s attention,” Yardeni remarked.
It resembles a child who amplifies their screams when they don’t get their way during a tantrum. Naturally, such outbursts could lead to actual economic consequences.
The more the markets decline, the higher the likelihood that businesses and consumers – particularly affluent households – will reduce spending, negatively impacting corporate profits and driving stock prices lower.
Yet, officials in Trump’s administration have demonstrated a “willingness to endure instability within the stock market,” noted Lerner, the strategist from Truist.
“Everyone is trying to determine: At what point will they start caring?” Lerner inquired.
