Mike Dolan
The fabled “bond vigilantes” and “currency cops” have yet to really push back on Donald Trump’s agenda, leaving anxious equities as the only financial market countering the U.S. president’s new economics.
Enter the “stock troopers”.
The Trump team has progressed to economic trench warfare this week, with the president doubling down on Canadian tariffs just the biggest stock meltdown since his inauguration. But plunging equities could yet shift his policy calculus.
Not only has Mr. Trump routinely identified the stock market as a critical measure of his success in the past, but the precipitous loss of market value this month could undermine the confidence of rich American families sensitive to the “wealth effect” and critical to aggregate consumption and growth.
Mr. Trump and his deputies attempted to face down the skirmish and economic risks last weekend, passing off the turbulence as a temporary, inevitable hiccup given the scope of their radical policy change.
Perhaps the most telling Trump comment in the unfolding battle was: “I’m not even looking at the stock market.”
This nonchalant vie–coming from a president who previously used U.S. equities as a policy weather vane–unsurprisingly spooked investors.
Many had assumed they had a “Trump put”, essentially the willingness of the new administration to slow down or pull back on its disruptive tariff and spending agenda if stock markets balked.
Back in his State of the Union address to Congress in February 2020, Mr. Trump said of the stock market: “All of those millions of people with 401(k)s and pensions are doing far better than they have ever done before with increases of 60, 70, 80, 90 and 100% and even more.”
So far, the president has yet to acknowledge the reversal of some of that paper wealth, despite the 8-12% losses posted by three key Wall Street indexes since he was sworn back into office in January–with a loss of some $5 trillion in total market value.
High and rising
But with business confidence draining amid tariff and jobs uncertainty, including among traditionally pro-Trump small business, investors at home and abroad smell big trouble. Wall Street and global investment houses are rushing to downgrade recommended weightings in U.S. equity and cutting U.S. growth forecasts to boot.
“Uncertainty is high and rising on Main Street, and for many reasons,” said Bill Dunkelberg, Chief Economist at the National Federation of Independent Business (NFIB), whose February sentiment survey posted its third straight decline last month.
Big global investors fear the potential inflationary effects of Trump’s trade, business and diplomatic upheavals. This should be alarming for the president, given the politically toxic impact of high inflation on the previous administration of Joe Biden.
“I think if we all are becoming a little more nationalistic and – I’m not saying that’s a bad thing, you know, it does resonate with me … (but) it’s going to have elevated inflation,” BlackRock CEO Larry Fink said on Monday.
And it’s not only domestic investor confidence that’s wavering, which should be unnerving considering how much foreign investment has pumped up Wall Street in recent years. That’s especially true of European funds, many of whom can now find emerging opportunities back home in their cheaper equity markets.
A standoff with the stock market is certainly not what most people had predicted after the election.
Many bet that so-called bond vigilantes – faced with a wobbling Treasury market and rising government borrowing costs–would push back against unfunded tax cut plans, rising deficits and inflationary tariffs.
Then, as tariff hike threats mounted, the dollar initially rose sharply, and some felt this currency move would neutralise the impact of the import taxes on foreign businesses selling into America.
But business and household jitters coupled with the prospect of an economic downturn have seen stocks cry foul instead, even as Treasury yields and the dollar turn tail.
Some speculate that market-savvy Treasury Secretary Scott Bessent has convinced Trump that getting Treasury yields down–and the dollar with them–is a bigger win given what the administration wants to do. If true, you could argue that the administration has posted two successes from the three main macro markets–which may satisfy them for now.
But a snowballing stock market slump will surely resonate more roundly with Mr. Trump’s base. And if it catalyses a wider recession, it may pack a far bigger punch than bonds or currencies.
(The author is a columnist for Reuters)
Published – March 12, 2025 03:45 pm IST
