With Congress acquiescing to all of Trump’s wishes and the courts stacked in his favor, many are concerned about an unbridled president. To the rescue comes the market.
By Sergei Klebnikov and Matt Schifrin, Forbes Staff
This past Thursday, President Trump reiterated his threat to impose 25% tariffs on Canadian and Mexican goods, citing insufficient action on border drug control. He also announced an additional 10% levy on Chinese goods, bringing the total to 20%. The financial markets reacted swiftly, with the S&P 500 closing down 1.6% for the day, pushing it into negative territory for 2025, while the NASDAQ fell 2.8%, now down 3.8% for the year.
Investors remain uncertain about Trump’s next moves, but history shows he pays attention to market signals. After initially signing tariff orders in February, stocks plummeted, only to recover when Trump paused the measures.
A failure of checks and balances has led to concerns over a strongman presidency and constitutional crisis. With a Republican-controlled Congress offering no resistance and the judiciary’s role unclear, traditional checks like media reports hold little sway over Trump, whose supporters distrust mainstream outlets.
However, Trump appears to heed one authority: the market.
“Trump is a president who has more closely aligned his own success with the stock market than any other president in US history,” says Jeremy Siegel, a Wharton emeritus professor and WisdomTree senior economist. “The market is the ultimate check, especially for a president who cares.”
While stocks surged after Trump’s reelection in November, cracks have emerged. Bitcoin prices have retreated 20% from their recent highs. During his first term, Trump’s tariffs on China caused markets to drop nearly 5% in a week, though tensions eased by 2020 with a trade agreement.
“It is instructive that in the trade war in his first term, Trump was willing and able to pivot when the economic damage became apparent,” wrote Moody’s chief economist Mark Zandi. “We expect a similar dynamic this time as well.”
Trump’s close ties with Wall Street elites make his sensitivity to financial markets unsurprising. In December, he rang the NYSE opening bell, celebrating his Time “Person of the Year” cover.
The bond market may be an even stronger check, given the nation’s $36 trillion debt. Former UK Prime Minister Liz Truss’s resignation after a bond market crisis serves as a cautionary tale. Bond vigilantes are likely to keep Trump cautious, as adherence to the rule of law matters to US debt holders.
Currently, 10-year Treasury yields have dropped since Trump took office, but mortgage rates remain high. The Trump administration benefits from the strong economy left by the Biden administration, which averaged 3.6% GDP growth from 2021-2024, compared to Trump’s 1.5% during his first term.
The real test will come if Trump faces a crisis not of his making, like the 2008 Financial Crisis. Then, the market guided leadership, as seen when the House initially rejected the $700 billion TARP bailout, causing the S&P 500 to plunge nearly 9% in four days.
During Trump’s first term, the Covid-19 pandemic and a stock market drop of over 30% spurred a $5 trillion stimulus over two years, buoying markets ever since.
— news from Forbes