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Key Takeaways
- The S&P 500 is off to its worst start for a presidential term since 2009, when Barack Obama entered the White House in the midst of the global financial crisis.
- Traditionally defensive sectors have outperformed since Trump's inauguration amid growing concern that tariffs could usher in a period of stagflation.
- Growth stocks that soared in the wake of Trump's election, like Tesla, have been the hardest hit by waning optimism.
Investors celebrated Donald Trump’s election win in November, driving stocks to record highs as they awaited tax cuts, deregulation and a Washington that was more business-friendly. Trump’s inconsistent approach to tariffs in recent weeks has dampened that optimism.
A Rough Start for Trump 2.0
The S&P 500 is off to its worst start for a presidential term since 2009, when Barack Obama entered the White House in the midst of the global financial crisis. As of Tuesday, the benchmark index was down more than 7% from Trump’s inauguration for a new term on Jan. 20, 2017. The Nasdaq Composite, which is heavily tech-oriented, has been hit even harder; it was down by more than 11% until it recovered slightly on Wednesday.
Many economists have warned about the potential for inflation to increase due to Trump’s tariffs. The levies, and the unpredictable way they’ve been rolled out, have also upended business leaders’ expectations for the U.S. economy, threatening to slow hiring and investment. Trump’s tariffs also have eroded the confidence of many Americans in the U.S. economic system.
Wall Street has been less optimistic about Trump’s tax and regulatory agendas due to the risk of stagflation. This is a period in which inflation is high and growth slow.
Trump Cites 'Some Disturbance' to Economy, Markets
Trump hasn’t done a lot to stabilize the markets in the past week. This is a significant departure from his first term when he frequently cited a strong stock as a sign that he was successful. Over the weekend, Trump refused to say if he thought that the U.S. would enter a recession in this year. When asked about the reaction of the market to his policies, he said, “You really can’t watch the stock exchange.”
Trump and members of his Cabinet have characterized economic turmoil forecasters see coming as “a period for detoxification,” “a time of transition,” and even “some disturbance.” What appears to be “some disturbance” on Wall Street is actually a recession. Since Trump’s election, stocks in traditionally defensive industries like healthcare and consumer staples have risen while sectors that are sensitive to recessions like consumer discretionary have plummeted.
Real estate stocks are enjoying a bittersweet respite. Interest rates fell recently largely because investors flocked to safe havens, like Treasurys. Their yields and consumer rates also dropped.
Post-Election Optimism Has Waned
Trump’s reelection has unleashed animal spirits in Wall Street. This has led to a sharp increase in growth stocks. Those stocks, boosted by post-election confidence, have been hit the hardest by Wall Street’s newly found pessimism.
Tesla (TSLA), as an example, stands out. After Trump’s election, investors bet on the electric car maker’s ability to benefit from Elon’s proximity to President Trump. Trump promised to end the government’s support for electric cars and promote their gas powered competitors, but the stock continued to rise. Musk promised to launch a robotaxi-service and transform Tesla into an AI powerhouse. Trump was expected, in part, to help him with this.
Tesla’s shares have been hit by Trump’s aggressive trade policies, Musk’s concern that he is overworked with government and corporate work, and the consumer backlash against Musk’s political influence. The stock, up until Monday, had lost all of its gains made after the election.
Trump says he isn’t paying attention to stock market. But he may have seen Tesla’s stock plummet. The South Lawn of White House looked like an electric Tesla showroom on Tuesday Trump inspected a few models and announced that he would be buying one to show his support for Musk.
"This man has devoted his energy and his life to doing this," Trump said of Musk’s work with the Department of Government Efficiency (DOGE), "and I think he's been treated very unfairly by a very small group of people."
Tesla was the best-performing stock in the S&P 500 on Wednesday.
