Trump Cares About the Stock Market More Than You Think

Market Volatility and Investor Uncertainty Under Trump's Policies

President Trump's erratic trade policies and contradictory statements have caused significant market volatility and investor uncertainty. His tendency to link stock market performance to his administration’s success has created a fragile economic environment. However, as markets move in the wrong direction, his stance appears to be shifting. The major indexes recently struggled to rally, with multiple attempts thwarted by policy reversals and inconsistent messaging.

For example, Trump increased tariffs on Canadian steel and aluminum to 50%, only to reverse them back to 25% by the end of the same day. He also contradicted his own statement on the potential for a recession, initially admitting a "period of transition" might be unavoidable, then later asserting, "I don’t see it at all. I think this country’s going to boom."

Miscalculations and the Impact of Trade Policy

These erratic and often contradictory statements suggest that Trump and his advisors, led by Howard Lutnick, underestimated how markets would respond to aggressive trade policies. Lutnick, with his Wall Street background, likely played a significant role in this miscalculation. The abrupt policy shifts and reactive nature of Trump's commentary appear to be responses to significant stock market declines that have made national headlines.

A sustained bear market would pose a major challenge to Trump's agenda, particularly regarding tax cuts and economic growth. A recession would lead to job losses, reduced capital investment, and weaker consumer spending—ultimately exacerbating budget deficits. Given that the top 10% of wage earners hold the majority of market wealth and drive nearly 50% of consumer spending, a prolonged downturn in equities could have a cascading effect on the broader economy.

The Risk of a Recession and Global Implications

If the market continues its downward trajectory, Trump’s ability to negotiate on the world stage would be significantly weakened. Many of the United States' trading partners are experiencing market rallies and economic growth, making Trump’s hardline stance on trade appear increasingly untenable.

While sentiment has been the primary driver of the near 10% correction in the S&P 500 and Nasdaq Composite—along with the brutal 18% decline in the Russell 2000—the broader economy has yet to fully absorb these shocks. The Federal Reserve was already guiding the economy into a mid-cycle slowdown, and Trump’s poorly executed trade policy has compounded this trend. Early warning signs are emerging, such as Delta Airlines lowering its first-quarter guidance due to weaker domestic travel, although international travel demand remains stable.

A Likely Shift in Trade Policy by April 2

This chaotic situation is likely to reach a turning point by April 2. Behind the scenes, the Trump administration is likely alarmed by the financial market collapse over the past three weeks. The 30-day grace period for 25% tariffs on Canadian and Mexican imports ends on April 2, at which point reciprocal tariffs will be implemented worldwide. However, the likelihood of these tariffs being fully enacted remains low.

I expect significant revisions to the proposed trade policies over the next few weeks. If these adjustments make the tariffs less burdensome on American businesses and consumers, it could lead to a stabilization of market sentiment. This would improve investor confidence, support economic data, and help steer the economy toward a soft landing rather than a recession.

The Russell 2000: A Leading Indicator for Market Recovery

If my assumptions hold, the Russell 2000 small-cap index could serve as a leading indicator for a market rebound. The index, which focuses on domestic companies, has suffered the most significant losses in recent weeks and is currently trading near its breakout level from the 2022 bear market. It is deeply oversold and has already priced in a recession scenario that I do not believe is imminent.

Strategic Investment Approach Amid Uncertainty

Many investment services provide individual stock recommendations, but few offer a comprehensive top-down strategy to navigate market cycles. The Portfolio Architect takes a holistic approach, helping investors tactically adjust their asset allocation between offensive and defensive positions. This complements other services focused on bottom-up security analysis, such as REITs, CEFs, ETFs, and dividend-paying stocks.

By understanding Trump’s deep concern for the stock market, investors can anticipate policy shifts that could stabilize equities. A well-structured investment strategy that adapts to these changes will be key to navigating the volatility ahead.