As President elect Donald Trump begins his second term in January next year, the market is "half happy, half worried" about the economic agenda he previously proposed during the campaign. However, some analysts believe that the US stock market will be the key limiting factor in his final decision.
Due to the complete control of Congress by the Republican Party after this election, Trump's ability to formulate new policies has greatly increased. He has been putting pressure on lawmakers to align with his agenda. These members of Congress seem enthusiastic about cooperation.
Therefore, analysts believe that the market may be an important means of balancing Trump's control over Washington. Based on his previous presidency, he will remain vigilant and sensitive to negative market reactions to his policies. For example, during Trump's first term, he liked to see the US stock market as a real-time indicator of how he was performing, and took credit for the rise in the US stock market on himself.
Mark Malek, Chief Investment Officer of financial services company Siebert, pointed out that Trump "has shown a strong interest in the US stock market, using it as a 'scorecard' for the success or failure of his administration
He further explained that 'perhaps the best example occurred on March 13, 2020'. Trump sent a signed chart of Yahoo Finance Dow Jones Industrial Average to the late Fox News anchor Lou Dobbs. After Trump announced that the COVID-19 had entered a national emergency, the index soared by nearly 2000 points that day.
This incident demonstrates how Trump views the relationship between the market and presidential performance, and observers say that if he announces or enacts policies that trigger a significant drop in the US stock market, he may adjust his approach.
Yardeni Research strategist Eric Wallerstein also agrees, stating that certain policies that increase fiscal deficits and cause panic among bond investors may prompt the government to reconsider.
The yield will soar, and the US stock market will react unfriendlyly to it, and then he may change direction, "he added.
This viewpoint also echoes Jeremy Siegel's viewpoint. The Wharton School professor pointed out shortly after the election that the elected president may be cautious when it comes to market related issues.
The bond market and stock market will both be significant constraints on many of Trump's plans, "he said.
Considering some of Trump's campaign promises, such as massive deportations of immigrants and universal tariffs of 10% -20% on imported goods, it may disappoint stock market investors, which is the most concerning issue for investors entering next year. Economists have repeatedly warned that these proposals could trigger a resurgence of inflation and limit the Federal Reserve's ability to continue cutting interest rates.
Sonu Varghese, global macro strategist at Carson Group, said, "The market's response to the significant increase in tariffs may be quite negative. President Trump may see the US stock market as a performance report card, so the negative market reaction may prompt his proposal to ease
On the other hand, Trump is so concerned about the performance of the US stock market that some analysts believe it may be because market volatility could affect his own wealth. According to media estimates, his net worth is approximately $6 billion, so there is reason to believe that a portion of his wealth is sensitive to market trends. This financial risk may further prompt him to avoid adopting policies that could disrupt market stability.
Therefore, analysts believe that if Trump ultimately wants to see the US stock market rise during his presidency, his campaign promises of massive tariffs and immigration deportations may have to be downplayed to avoid collateral damage.
I think any president would want to develop policies that benefit the market, "Wallerstein said.