The markets have been tumultuous throughout the first few months of President Trump’s second term. The S&P is around 7% since Trump took office. The markets have been stuck in a state of uncertainty and volatility as they react to what is coming out of the Oval Office. Often, the markets have been reacting not to White House statements or official actions, but rather to Trump’s social media accounts.
Trump’s social media postings are creating an unstable and volatile economic environment. For example, the “Truth” he posted on April 9 around noon essentially said a recession seemed imminent. Before the bombshell “Truth” at 9:37 AM earlier that day, he said “THIS IS A GREAT TIME TO BUY!!!”
The S&P responded to his comment by going up about 70 points in four minutes. His comment at 1:18 PM, when he announced that he was scaling back “Liberation Day” reciprocal tariffs substantially ended up breaking the market. In nine minutes the S&P went up by almost 350 points and by the end of the day was up almost 500 points, marking the largest single-day gain for the index since 2008. These are only a handful of data points that show the market’s response to Trump’s comments.
In Trump’s second term it seems as if the market spins on a slot machine all day before deciding where to land. Nonetheless, despite the hardships of the past couple months, the market has enjoyed relatively stability since the week of April 21st. This is likely attributed to relaxed stances from the White House on some issues that were concerning investors.
It seems like Trump might have realized that in order to keep his economy in check, it needs some form of stability. This may have caused Trump to indicate that he will not—for now—fire Fed Chair Jerome Powell, which would result in a selloff, though it’s likely he does not have the power to even do so. He also is signaling, through social media and other avenues, that he will soften his position on tariffs again, specifically on China.
The Chinese Communist Party has not backed down to Trump’s demands but rather seem to be on the attack themselves. Although Trump has been able to tangle with a lot of things so far, he has failed in taking on China. The market’s reaction to his China tariff policies may be enough to cause Trump to change his position.
The market is sending Trump a message that it prefers stability and certainty. The economic growth seen in the first Trump term can be attributed to a more stable environment. The market needs stability to grow. That is why, while falling short of Trump’s first term market growth, Former President Biden’s market saw stable growth throughout his tenure despite economic concerns.
Even with consumers feeling the blunt of inflation, the White House maintained decent and professional messaging which resulted in a stable market. By contrast, the inconsistent messaging of this administration has proved to be daunting for people looking to invest in the market.
The market, even with last week’s small recovery, remains uncertain. On Friday, April 25, the market followed the pattern of relatively stable improvements seen throughout the week. If the market continues on its current trajectory, we should see a major rebound and eventual return to those all-time highs seen at the very start of President Trump’s second term. However, because of the impact President Trump has been shown to have on the market, he has a fork in the road to follow: will he contribute to a flourishing market by providing stable and consistent rhetoric for investors to follow, or, will his erratic tariff and economic policy changes continue. Instead of unraveling his economic plans methodically, the chaotic roll out has caused investors to panic and be unsure of their investments.
Although a deal with China does not seem imminent, at least the possibility of one helped the market the week of April 21st. If a deal with China comes along soon, it may help avoid the recession that has seemed imminent these past couple months. But, if the White House is unable to strike a deal, then we will most likely see ourselves on the losing end of a trade war with the manufacturing giant.
Winning a trade war with China is unrealistic and a long-lasting trade war would likely be a disaster for the U.S. economy. This raises the bigger questions, why is the United States fighting with China over trade and why does the president have such a hold on the markets? The answers: they should not and he should not.
Engaging in a trade war with China at this point is preposterous. They hold the manufacturing power and they have advantages across the board. In China, there are no unions as there are in America, there are no benefits for workers, no maximum work hours, no minimum wage, no child labor laws. By operating an inhumane state, they are simply able to outcompete America with their very low labor costs and their large industrial power.
Whether America wants to make the morality argument at this point is essentially irrelevant—it has been thriving off of cheap labor and manufacturing for years. The United States is a developed country and buys more than it sells. Rather than investing in top manufacturing power, post World War II, America has been focused on setting up a robust consumer economy that has become increasingly reliant on cheap labor from Southeast Asia and China.
The U.S now has labor costs that are not competitive for most manufacturing businesses. In order for the American public to afford the products they consume, it is contingent on unethical foreign labor. Otherwise, the products would be unaffordable and/or the companies would go out of business because of the high manufacturing cost. The exported manufacturing has become essential to the American economy and the manufacturing power has become essential to the Chinese economy. Rather than ruining the balance between the two, despite their human rights issues among others, the U.S must work with China in order to foster economies that are productive for both countries.
Lastly, Trump’s daily impact on the markets is even more significant than in his first term. Right now, the biggest problem is the unpredictability; investors do not know his next move. If Trump really wants to execute a conservative agenda that will have him remembered as a successful president, creating stable markets is key and to do so he must focus on pushing economic policy through legislation rather than executive action.
To do that, Trump needs robust plans that have enough bipartisan support to work. Right now, no matter what he does, all of these executive actions can be changed the second the next president comes into power, legislation is permanency in law that can only be overruled by another law or the Supreme Court. Therefore, in order to create real policy that will outlive him, he must go by the process, rather than forgoing some of the checks and balances that America has seen so far. If the president keeps his mouth shut and understands investors’ needs, the U.S. markets might get back on track too. If Trump can stay away and let the economy truly dictate itself without protectionism, America will come out of this economic hole, and hopefully turn the page towards four years of economic growth.
