Key Takeaways
Investors cheered Donald Trump’s election victory in November, bidding up stocks to record highs in anticipation of tax cuts, deregulation, and a business-friendly Washington. Trump’s on-again, off-again approach to
tariffs
has thrown cold water on that optimism in recent weeks.
A Rough Start to Trump 2.0
The
S&P 500
is off to its worst start for a presidential term since 2009, when Barack Obama entered the White House in the midst of the
global financial crisis
. The benchmark index had, as of Tuesday’s close, fallen more than 7% since Trump was inaugurated for a second term on Jan. 20. The tech-heavy
Nasdaq Composite
has had it even worse; it was down more than 11% before rebounding slightly on Wednesday.
The stock market has been shaken in recent weeks by Trump’s tariffs, which many economists have warned
could reaccelerate inflation
. The levies, and the unpredictable way they’ve been rolled out, have also upended
business leaders’ expectations
for the U.S. economy, threatening to slow hiring and investment. Finally, Trump’s tariffs have eroded many everyday Americans’
confidence in the U.S. economy
.
Ultimately, the risk that tariffs usher in a period of
stagflation
, in which growth is slow and inflation high, has offset most of the optimism on Wall Street about Trump’s regulatory and tax agendas.
Trump Cites ‘Some Disturbance’ to Economy, Markets
Trump hasn’t done much to stabilize markets in the last week, a notable departure from his first term, in which he regularly invoked a strong stock market as a sign of his success. Over the weekend, Trump declined to say whether he thought the U.S. could enter a
recession
this year and, when asked about the market’s reaction to his policies, said, “You can’t really watch the stock market.”
Trump and his Cabinet members have characterized the economic turmoil some forecasters see on the horizon as “a detox period,” “a period of transition,” and “some disturbance.” But what looks like “some disturbance” in Washington looks like a recession to many on Wall Street. Since Trump’s inauguration, stocks in traditionally
defensive sectors
like consumer staples and healthcare have risen, while recession-sensitive sectors like consumer discretionary and financials have slumped.
Real-estate stocks have gotten a bittersweet reprieve. Interest rates tumbled recently in large part because
fearful investors fled risk assets
for safe havens like Treasurys, causing their yields and consumer interest rates to fall.
Post-Election Optimism Has Waned
Trump’s re-election unleashed
animal spirits
on Wall Street, fueling a sharp rise in
growth stocks
, especially of companies expected to benefit from
artificial intelligence (AI)
. Those stocks, lifted by post-election optimism, have been some of the hardest hit by Wall Street’s newfound pessimism.
Tesla (
TSLA
) stock stands out as a prime example. Shares
shot up in the wake of Trump’s election
as investors bet the electric vehicle maker would benefit from CEO Elon Musk’s proximity to the president. Trump promised to
end government support
for electric vehicles and promote their gas-powered competitors, yet the stock continued to climb. That was in part because Musk said he would
launch a robotaxi service
and turn Tesla into an AI powerhouse, all of which Trump was expected to assist with.
Since Trump’s inauguration, Tesla’s stock has been battered by his
aggressive tariff policies
, concern Musk is
stretched too thin
with corporate and government work, and a
consumer backlash
against Musk’s political influence. The stock, as of Monday, had
given up all of its post-election gains
.
Trump says he’s not paying attention to the stock market, but he may have noticed Tesla’s stock swoon. The South Lawn of the White House resembled a Tesla showroom on Tuesday when Trump inspected several models and
said he was buying one
as a show of support for Musk.
“This man has devoted his energy and his life to doing this,” Trump said of Musk’s work with the Department of Government Efficiency (DOGE), “and I think he’s been treated very unfairly by a very small group of people.”
Tesla was
the best-performing stock
in the S&P 500 on Wednesday.
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