In the waning days of 2024, as the world braced for the start of the second Trump presidency, there was a theory making the rounds that went like this: Sure, economists said his agenda could spell disaster but there’s at least one institution that would be able rein in Trump’s worst instincts — Wall Street!
There was good reason to believe that Donald Trump was so afraid of stocks falling on his watch that he’d retreat from some of his more extreme policies. Like across-the-board tariffs, which would eat into profit margins and infuriate investors.
Several analysts said as much to my colleague Matt Egan at the time. And more than a dozen people close to the president told the New York Times that he “sees the market as a barometer of his success and abhors the idea that his actions might drive down stock prices.”
It was a nice idea — and, based on evidence from his first term, a probable one.
It hasn’t held up so far.
Stocks tumbled around the world Tuesday in response to Trump’s decision to go through with tariffs on America’s closest trading partners, Canada and Mexico, both of which immediately announced plans to retaliate with tariffs on US imports. The Dow ended the day down 670 points, or 1.5%. The Nasdaq fell 0.3% and the S&P 500 fell 1.2%.
Yet Trump doubled down on tariffs during his joint address to Congress Tuesday, though he acknowledged that tariffs are unpopular and could cause some pain. In one of his more vulnerable moments during the speech, Trump pleaded for patience, asking farmers who could be hurt by retaliatory tariffs to “bear with me,” and said “there will be a little disturbance.”
Still, there’s some suggestion that the market might have started to get to Trump: Commerce Secretary Howard Lutnick went on Fox Business Tuesday night to say that “both the Mexicans and the Canadians were on the phone with me all day” and that a deal to roll back some of the tariffs could come as soon as Wednesday.
The end of the ‘Trump put’
Wall Street was already on a tear when Trump clinched the election in November, but hopes for more deregulation and a potential dealmaking renaissance poured kerosene on that fire. Even as Trump’s tariff rhetoric intensified, investors largely shrugged, in some cases assuming he was bluffing — that tariff threats were just a negotiating tool.
*Narrator voice:* They were not.
The past few months have been the era of the “Trump put,” in Wall Street lingo. That’s the theory (or the hope) that the president would ultimately reverse course if his tariff gambits did what tariff gambits tend to do. If the S&P 500 dropped below its Election Day level, for instance, surely that would set off an alarm at the White House. Right?
Not yet, anyway, my brothers in banking.
The S&P 500, the broadest measure of the US stock market, has erased all of its gains since Trump’s re-election and is down nearly 4% since he took office. The index fell 2% on Monday, its worse day of the year, and continued its decline Tuesday down as Trump doled out tariffs that he has assured the public are just the beginning.
The Dow has shed 1,300 points in two days, and it’s down nearly 2,000 points since its all-time high in the beginning of December.
But the tech-heavy Nasdaq has really taken it on the chin, tumbling 7% since Trump’s inauguration. Tech stocks, which had been flying high over the last two years on investors’ dreams of an AI-powered future, are particularly sensitive to signs of a weakening economy.
“This is a very dumb thing to do,” Canadian Prime Minister Justin Trudeau said Tuesday, echoing a Wall Street Journal editorial that reads: “Trump Takes the Dumbest Tariff Plunge.”
As Bloomberg noted, strategists are now debating whether any market threshold exists that would push Trump to change course. And even if that level does exist, it’s not clear Trump could just snap his fingers and turn investor sentiment on a dime.
“I think he tried to implement the Trump put in cryptos, and it didn’t have a huge lasting effect,” Sosnick said, referring to Trump’s announcement Sunday of a crypto reserve that sparked a short-lived rally in digital assets.
Cue the blame game
Back in November, as the market guardrail theory emerged, not everyone was convinced. Notably, Jeffrey Sonnenfeld, the founder and president of the Yale Chief Executive Leadership Institute, told CNN that Trump would take any negative feedback from the stock market as a chance to blame someone, or anyone, but himself.
“He’ll blame Democrats, the drug companies, the tech companies — anybody,” Sonnenfeld said at the time. “It will never be his fault.”
Sure enough, when a plane crashed in the Potomac shortly after Trump took office, it was, in his telling, DEI’s fault. Also his predecessors. And Democrats broadly. When a January inflation report showed consumer prices rising more than expected, it was “Biden’s inflation.”
Treasury Secretary Scott Bessent further laid the groundwork for that narrative on Friday, telling Bloomberg in an interview that the economy becomes Trump’s responsibility only after he’s been in office six to 12 months.
“That means the administration views everything that is occurring right now as cleaning up the Biden administration’s mess,” said Mike O’Rourke, chief market strategist for Jones Trading, in an email. “In essence, this is a political kitchen sink quarter.”
