After Donald Trump’s re-election in 2024, the stock market soared to unprecedented levels. Wall Street celebrated Trump’s pledges for further tax reductions and less stringent regulations, along with the freedom to express politically incorrect views about DEI. What could possibly go wrong?
Quite a bit, as it turns out. Trump has only been in office for two months, and the S&P 500 has dropped below its pre-November 6 levels and is now in correction territory. The likelihood of a recession is escalating, and consumer and small business confidence is on a steep decline, all amidst rising inflation fears. Numerous Fortune 500 companies are reporting a downturn in consumer spending. The dreaded term “stagflation” is making its rounds.
The Trump administration is certainly not providing any comfort.
It’s no surprise that so few people seem inclined to plan vacations. According to the Conference Board, fewer than 40% of Americans intend to take a vacation in the next six months. Over the past 40 years, this figure has only been lower during the Covid-19 pandemic and the Great Recession.
The Trump administration is hardly instilling confidence. Both the president and his aides, including Treasury Secretary Scott Bessent, dismiss the idea of ruling out a recession, even asserting that economic hardship will pave the way for a more promising future. The president referred to it as “a period of transition.” Commerce Secretary Howard Lutnick claimed that Trump’s tariff policies will be “worth it,” even if they result in a recession.
As one banker mentioned to the Financial Times, “In hindsight, we didn’t fully grasp the nature of what the administration would be like.”
You don’t say.
Wall Street’s initial excitement for Donald Trump was always more about hope than actual experience or evidence. Certainly, distance can magnify fondness, but there were clear indicators long before Trump’s election that he was serious about tariffs—which Wall Street, whether rationally or not, detests—and other measures causing market turbulence and economic caution since his inauguration. You would think the chaotic handling of the Covid pandemic and the tumultuous end of his first term would have made the financial elites rethink their enthusiasm.
Yet, it did not.
Even in optimal conditions, Trump is inherently chaotic. He has increasingly adopted chaos as both an economic and governance tactic, a fact that should signal caution for economic management.
For instance, tariffs can be implemented in a way that is strategic, stable, and reliable, offering the long-term goal of enhancing the nation’s manufacturing capabilities. Trump’s methodology lacks all these crucial aspects. His objectives include ridiculous plans like trying to annex Canada. He rollouts tariffs one day only to rescind them the next. Even his target selection, as noted by Lutnick, stems not from logical criteria but from which countries “displease him.”
Financial markets and companies seek stability and predictability; they respond poorly to upheaval and political favoritism.
The administration’s strategy for reducing government size is another concern. Trump has permitted aides like Elon Musk’s followers at the so-called Department of Government Efficiency to terminate tens of thousands of federal employees, cancel numerous federal contracts, and even stiff companies that have completed federal work. Many of these measures may eventually be overturned in court, but for now, universities and affected businesses are enacting hiring freezes and laying off staff. Others, such as former Social Security Commissioner Martin O’Malley, worry that proposed DOGE cuts to Social Security, driven by unfounded fraud allegations, could lead to a “total system collapse.” This uncertainty fosters growing pessimism among consumers.
Then there’s Trump’s blatant corruption and vengeful politics. He is targeting numerous law firms involved in his various legal troubles, all while he and his family profit from ventures like cryptocurrency sales and Amazon’s $40 million deal for an “unprecedented, behind-the-scenes” documentary about Melania Trump.
As I’ve previously noted, the United States isn’t just a financial powerhouse because of its abundant resources. We were, or at least were perceived to be, a stable nation where the rule of law is upheld fairly and consistently. Financial markets and companies yearn for stability and predictability; they falter in the face of chaos and political favoritism. Just as individuals need assurance that their jobs will be secure before making significant purchases, the same principle applies to businesses. They cannot effectively plan for the future without a reliable sense of their ongoing expenses and revenues—a reality that is increasingly elusive in Trump’s economy.
“The challenge for the markets is when they lack direction,” billionaire investor Marc Lasry remarked last week. “An economy cannot sustain itself like that.”
Let me emphasize: uncertainty is detrimental for everyone, not just the financial sector.
There exists a widespread myth that Republicans are economically superior to Democrats. Nothing could be further from reality. Job growth tends to be more robust under Democratic leadership. The S&P 500 performs better under Democratic presidents. Nine out of the last ten recessions—each of the last five included—have been initiated while a Republican occupied the Oval Office.
Yet, many who ought to know better refuse to acknowledge the evidence.
It’s a personal matter. Even as inequality has surged to near-record levels, many affluent Americans—from Wall Street to Silicon Valley and beyond—claim to be the true victims, reacting against the Biden administration and complaining about regulations or potential tax increases. These so-called financial experts allow their greed and resentment to blind them to the foundational reality of Donald Trump.
