As President-elect Trump begins his second term in January, the US stock market may play an important constraining role on the decisions he ultimately makes.
With the Republican Party fully controlling Congress, Trump's ability to implement new policies has been significantly enhanced; he has pressured lawmakers to align with his agenda, and these Congress members seem willing to cooperate.
The US stock market may become an important counterbalance to Trump's control over Washington. If his past performance as president can be referenced, he would be vigilant and sensitive to the market's negative reactions to his policies.
During Trump's first term, he viewed the US stock market as a real-time indicator of his performance, taking credit when the market rose and deflecting blame when it fell.
Perhaps the best illustration of this occurred on March 13, 2020. Trump sent a Yahoo Finance chart, signed by him, to the late Fox News host Lou Dobbs, showing that the Dow Jones Industrial Average surged nearly 2000 points after Trump declared the COVID-19 pandemic a national emergency.
This moment illustrates how Trump views the relationship between the market and his presidential performance. Observers say that if he announces or implements policies that lead to a sharp decline in the stock market, he may adjust his approach.
Eric Wallerstein, a strategist at Yardeni Research, stated that certain policies that would increase the fiscal deficit and panic bond investors could be events that prompt the Trump administration to reconsider.
Wallerstein stated: "US Treasury yields will rise, and the stock market will react negatively to this situation, and then he may change direction."
This view is echoed by Jeremy Siegel, a professor at the Wharton School, who pointed out shortly after the US election that the elected president may be cautious regarding the market.
Siegel said: "The US Treasury and stock markets will become significant constraints on many of Trump's plans."
Given some of Trump's campaign promises, such as large-scale deportations and a general tariff of 10%-20% on imported goods, which may displease stock market investors, this dynamic is a key focus for investors next year. Economists believe that these proposals could trigger an inflation rebound and limit the Federal Reserve's ability to continue cutting interest rates.
Sonu Varghese, a global macro strategist at Carson Group, pointed out, "If tariffs are significantly increased, the market's reaction could be very negative, and President Trump may view the stock market as a scorecard for his performance, thus negative market reactions may prompt him to temper that proposal."
Trump himself has stated that his proposals will not affect inflation in the United States. In a speech in August, he said: "I will impose tariffs on goods entering our country, which has nothing to do with our tax system; it's a tax on another country."
Another reason the stock market can counterbalance Trump's decisions is that market volatility may affect his personal wealth.
Mark Malek, Chief Investment Officer at Siebert, said: "Given Bloomberg's estimate of his net worth at around $6 billion, it is reasonable to assume that a portion of his wealth is sensitive to market fluctuations, and this financial risk may further motivate him to avoid policies that could lead to market turmoil."
Therefore, if Trump ultimately wants to see the stock market rise during his presidency, his massive tariffs and campaign promises to deport immigrants may have to be toned down to avoid collateral damage.
Article reposted from: Jin10 Data