The president-elect follows the markets closely. He bragged frequently about how well stocks performed in his first term in office, and said they had boomed this year in anticipation of his return to the White House.
Since Election Day, a great deal of financial analysis has been devoted to one central question: How will the new Trump administration affect the markets?
But another important question isn’t being asked as frequently: To what extent can the markets serve as a check on the power of the president? With Republican control of the House and Senate and a conservative majority on the Supreme Court, Donald J. Trump will face fewer curbs from the nation’s political institutions than he did in his first term. Given this vacuum, it’s reasonable to wonder whether the markets will play an outsize role.
I’d say that in this stage of the presidential transition, the evidence is mixed. Yes, in a tenuous and unpredictable way, the markets are likely to influence the next administration’s decision-making and, occasionally, serve as a check on some of Trump’s most immoderate behavior.
But I wouldn’t go far with this. For one thing, financial markets have come to discount — you might say “normalize” — actions and statements that would set off strongly negative reactions if made by other public figures. And Trump’s more pugnacious statements are often viewed as initial bargaining positions. Still, from the standpoint of the markets, Trump can probably go quite far in enacting his campaign promises as long as corporate profits rise and the economy grows.
The events of the last week or so are a case in point. Trump set out to calm the markets with appointments of urbane experts known for a nonideological approach to finance, but also unleashed a global storm with the announcement that he planned to impose new 25 percent tariffs on Canada and Mexico and add a 10 percent tariff on China. Trump seems intent both on mollifying the markets and on disregarding their message when it is inconvenient. So far, this tactic is working.
Late last Friday, Trump designated Scott Bessent, a familiar figure in finance, as his choice for Treasury secretary. Stocks and bonds rallied on the news on Monday.
But later that day, Trump declared on social media that he would impose the new tariffs as soon as he returned to the White House. These measures, as well as deeper and broader levies promised during his campaign, are a negative development in the estimation of most economists. All else equal, tariffs tend to raise prices, hurt consumers, impede economic growth and disrupt global trade and foreign currency markets.
But the markets weren’t troubled. The S&P 500 hit another record on Tuesday.
It’s calm on Wall Street right now, yet investors will need to hedge their bets.
Bessent is a hedge fund billionaire and a Yale graduate who speaks the pragmatic, nonideological language of the markets. He once ran money for George Soros, the Republican bête noire. Of course, Bessent says he supports Trump’s policies. Such fealty is a prerequisite for a high-level administration post.
In manner, he is being compared to Steven Mnuchin, the Treasury secretary in the first Trump administration. Despite chaotic conditions elsewhere in the executive branch and criticism from both the left and right, Mnuchin, a veteran banker and film financier, and also a Yale graduate, was generally esteemed in financial markets.
Similarly, the markets have greeted Bessent with undisguised appreciation.
Take “In Bessent We Trust,” a brief note to the clients of Yardeni Research, an independent financial markets research firm headed by the veteran economist Edward Yardeni. The note quoted Bessent extensively because Bessent agrees with Yardeni’s optimistic outlook. In January, Bessent wrote to his hedge fund clients that a great economic boom was probably ahead of us.
This is a positive gloss on the outlook for Trump’s economic proposals, which I think are likely to swell the budget deficit and disrupt the economy if higher tariffs and mass deportations of undocumented immigrants actually take place. But if you accentuate the positive side of Trump’s promises of lower taxes and a lighter regulatory hand on businesses, and minimize the negatives, then the current bull market, which began under President Biden, could well continue under President Trump.
No doubt, Kevin Hassett, whom Trump has chosen to head the National Economic Council, will do what he can to ensure that the stock market rises. Hassett is a traditional, credentialed economist who served in the first Trump administration. Yet he has said that tariffs can be negative for economic growth and that, by expanding the labor supply, immigration tends to help the economy.
I expect the new administration to try to help the markets rise. And if Trump’s policies interfere with the ability of companies to make profits and of investors to prosper, I expect course corrections.
The New York Times
