The Big Picture
Column summary:
- There is no "Trump put."
- The stock market doesn't like the cadence of the tariff news.
- The absence of a "Trump put" heightens the market's sense of uncertainty.
It has been said that there has never been a president more in tune with the performance of the stock market, as a proxy for the job the president is doing, than President Trump.
If that is how he chooses to look at things, so be it. What bears repeating here is that the stock market is not the economy. Ultimately, how the economy performs is how the voting populace assesses the job the president is doing.
Be that as it may, market participants have a unique ability to steer the stock market as if it is the economy -- or at least the economy they expect to see. Right now, the stock market is steering for a slower economy, and it has come off the rails a bit because, ironically, the president doesn't seem interested in steering the stock market.
What's Not to Like?
President Trump has been aggressive with his tariff plans, just as he said he would be on the campaign trail. The approach has been frustrating for stock market participants to digest, because it has featured some on again-off again directives.
For instance, 25% tariffs were announced on February 1 for Canada and Mexico, but after some discussion with government leaders there, the tariff actions were delayed for one month. Those tariffs were implemented, as advertised, on March 4, and for good measure the president told China that there will be an additional 10% tariff on goods imported from China, taking its tariff rate to 20%.
The 25% tariff action for Canada and Mexico got massaged, however, with the administration first suggesting it would exempt autos from the tariffs and then subsequently clarifying that all USMCA compliant goods and services will be exempt for... one month. The remainder of goods and services not USMCA compliant -- roughly 60% for Canada and 50% for Mexico -- would be hit with the 25% tariff.
Not surprisingly, Canada, Mexico, and China all responded with retaliatory tariff actions for imported U.S. products (mostly agricultural products in the case of China).
President Trump, meanwhile, has stuck to his tariff guns and has indicated that "reciprocal tariffs" for countries with higher tariffs on imported U.S. goods than what the U.S. charges for their imported goods are coming. The drop date was indicated to be April 2, but President Trump said on March 7 that they could start "as early as today" or maybe early next week.
In a nutshell, the stock market hasn't liked the tariff news. It hasn't liked the cadence of the announcements, which has injected added uncertainty for companies trying to make investment decisions, and it hasn't been convinced these tariff actions won't lead to higher inflation and/or weaker growth.
Its misgivings have manifested themselves in the following ways:
- The countercyclical health care and consumer staples sectors have exhibited relative strength.
- The consumer discretionary and financial sectors have underperformed.
- There has been a stark unwinding of momentum trades.
- The Treasury market has rallied, driving yields lower.
- The dollar has sold off.
- Oil prices have weakened.
- The fed funds futures market has priced in the likelihood of three rate cuts in 2025 versus two only a short time ago.
Three's Company
With every stair step down in the major indices, there has been a residual claim that the president won't allow the losses to continue since he is so in tune with what the stock market is doing. That is the rudiment of the so-called "Trump put." That is, if losses mount, he will announce a policy move of some kind that will convince the market to squelch its selling interest and ramp up its buying efforts.
That confident and otherwise calming expectation got steamrolled this week by none other than President Trump and a few of his cabinet friends.
- After the most recent back-and-forth on the tariffs for Canada and Mexico, the president was asked if his decision to provide certain exemptions was due to the stock market's performance. His reply, according to CNBC, was that the decision had "...nothing to do with the market. I'm not even looking at the market, because long term the United States will be very strong with what is happening here."
- Commerce Secretary Lutnick told CNBC, "The president wants American growth and American prosperity, OK? And the fact that the stock market goes down half a percent or percent, it goes up half a percent or percent, that is not the driving force of our outcomes."
- Treasury Secretary Bessent was the most explicit, also telling CNBC, "There’s no put... The Trump call on the upside is, if we have good policies, then the markets will go up.”
The market hasn't liked the cadence of the tariff announcements and, well, let's just say it isn't enamored with the thought that there is no "Trump put."
What It All Means
Undoubtedly, there will be doubts as to whether the president truly means it when he says he is not even looking at the market. Will that same insouciant perspective apply if the stock market enters into a bear market (generally defined as a 20% drop from a prior peak)?
We suppose that is the question, yet it is just one more answer that is unknown. It is also one more element adding to the heightened sense of uncertainty in the market that has reined in its complacent disposition.
The result has been lower stock prices, lower confidence, and a lower floor for the president's tolerance of stock market losses because there is reportedly no "Trump put."
The notion that there isn't a "Trump put" flies in the face of what the stock market had been counting on coming into the year. It is one more thing the stock market will have to get its mind around as it continues to contend with tariff uncertainty and growth concerns, which means it is one more thing that will keep this market trading in a fitful manner.
