President Trump Will Have One Policy: Keep the Market Happy!
Shabnam Sorkhi | SEP 2024
As the market tries to decipher what a Trump presidency will look like, one aspect that doesn’t seem to get enough attention is that whatever he does, he cares deeply about the stock market’s performance.
Author - Shabnam Sorkhi
During President Trump's previous term, it was clear that he took cues from the stock market, often gauging the success of his policies based on how markets reacted. This was evident when Trump would walk back aggressive stances (such as tariffs) if they led to market downturns. Therefore, in a potential second term, it's reasonable to expect him to continue this approach, avoiding policies that could disrupt economic growth or cause significant market sell-offs. This sensitivity to market reactions means that even aggressive policy positions could be tempered quickly if they threaten to destabilize the financial landscape.
Using SPY as the market indicator, we can see clear patterns where his comments or actions led to volatility, and his subsequent adjustments helped stabilize or boost the market. This behavior could be factored into any forward-looking trade ideas, as it suggests that a Trump presidency would likely avoid drastic actions that would lead to sustained market weakness.
The next four years of Trump?
Simple: buy the dip, ride the rally, and keep your eye on his X account. Expect volatility, but don't bet against the market for long. He will step in with the “presidential put” to prop it back up. Stick with pro-business sectors, and stay ready to pivot when he does.
If you are banking on a ruined relationship with China or certain sectors taking a hit, those trades might not play out as expected. History shows Trump won't let things collapse in a way that hurts the market. He would adjust, pivot, or soften his stance to keep things steady.
But, don't just take my word for it. Let's look at how the S&P 500 moved during his presidency. The pattern speaks for itself.
1. January 2018 - Trade Negotiations (War) Escalation
Event: Early 2018 marked the beginning of escalating trade tensions between the U.S. and China. Trump announced tariffs on Chinese goods, prompting fears of a trade war. The market reacted negatively, with SPY dropping significantly in late January and early February 2018.
Trump’s Response: After significant market weakness, President Trump began hinting at possible negotiations and even suggested that tariffs could be avoided if a deal was reached. This softer tone helped the market recover in the weeks following.
SPY Performance: After declining sharply in late January and early February, SPY found support and began recovering in late February through March as Trump's rhetoric softened.
2. March - April 2018 - Steel and Aluminum Tariffs
Event: In March 2018, President Trump announced tariffs on steel and aluminum imports, citing national security concerns. The announcement led to fears of a trade war, triggering a drop in SPY. Markets reacted negatively, fearing that retaliatory tariffs from other countries would escalate into a broader conflict.
Trump’s Response: Following market reactions, Trump softened his stance, allowing exemptions for key trading partners, including Canada, Mexico, and the European Union. This alleviated some fears of a full-blown trade war, leading to a recovery in SPY.
Notable Tweet “Looking forward to 3:30 P.M. meeting today at the White House. We have to protect & build our Steel and Aluminum Industries while at the same time showing great flexibility and cooperation toward those that are real friends and treat us fairly on both trade and the military.” – Trump, Mar 8, 2018
3. August 2018 – NAFTA Renegotiation and Canada Concerns
Event: Throughout 2018, the Trump administration was focused on renegotiating NAFTA. In August, after reaching a preliminary deal with Mexico, President Trump threatened to exclude Canada from the new agreement if a deal wasn't reached quickly. This uncertainty led to a brief dip in SPY, as markets were concerned about potential disruptions to North American trade.
Trump’s Response: Following market reactions, President Trump softened his tone, indicating a willingness to negotiate further with Canada. Eventually, the US, Canada, and Mexico agreed to a new trade deal (USMCA), which eased market concerns, and SPY rebounded.
Notable Tweet “Deal with Mexico is coming along nicely. Autoworkers and farmers must be taken care of or there will be no deal. New President of Mexico has been an absolute gentleman. Canada must wait. Their Tariffs and Trade Barriers are far too high. Will tax cars if we can’t make a deal!” – Trump, Aug 10, 2018.
4. October - December 2018 - Trade War Dynamics and Multiple Rounds of Tariffs Announced
Event: Throughout late 2018, markets experienced significant volatility, with SPY facing a correction. A major contributing factor was the ongoing trade war, which escalated with multiple rounds of tariffs announced by the Trump administration. The market feared prolonged economic impact, leading to a sell-off.
Trump’s Response: By early December 2018, after a particularly harsh market reaction, President Trump expressed optimism about reaching a trade deal with China. He even referred to a phone call with President Xi, suggesting progress. This comment, despite skepticism, helped stem the market's decline. Later that month, Trump indicated potential pauses in tariff escalation.
SPY Performance: SPY fell sharply from early October to late December 2018, however, after Trump's softer rhetoric in early December, the market began to stabilize and rebounded sharply starting in late December, heading into January 2019.
5. May - June 2019 - Trade War Negotiations (Huawei Ban, etc.)
Event: In May 2019, President Trump escalated the trade war by placing Huawei, a Chinese telecom giant, on a trade blacklist, effectively banning U.S. companies from doing business with it. This move led to heightened trade tensions and a sharp sell-off in SPY, as markets feared further retaliation from China.
Trump’s Response: After the significant drop in SPY, Trump signaled that the Huawei ban could be lifted as part of a broader trade deal with China. This softer stance helped alleviate fears and contributed to a market recovery in June, particularly during the G20 summit, where he announced that US-China trade talks would resume. SPY started to bounce back.
Notable Tweet “I had a great meeting with President Xi of China yesterday, far better than expected. I agreed not to increase the already existing Tariffs that we charge China while we continue to negotiate. China has agreed that, during the negotiation, they will begin purchasing large...” – Trump, Jun 29, 2019.
6. August 2019 to January 2020 – China’s Currency Manipulation and Phase One Trade Deal
Event: In early August 2019, after China allowed the yuan to weaken past the key 7-per-dollar level, Trump's administration labeled China a "currency manipulator," escalating trade tensions. This announcement, along with existing tariff threats, led to a significant downturn in SPY, as markets reacted negatively to the prospect of further trade barriers.
Trump’s Response: Facing market turmoil, President Trump began to backtrack by stating that trade talks with China would continue, hinting at potential delays or pauses in new tariffs. This helped ease investor concerns and led to a partial recovery in SPY by mid-September.
Leading up to October, the trade negotiations had created significant uncertainty. SPY was volatile as markets feared a prolonged conflict with China. Trump, facing this market volatility, announced a "phase one" trade deal with China, reducing immediate trade tensions. The announcement of this initial deal, even if not comprehensive, helped calm markets, leading to a rally in SPY through the end of 2019.
In January 2020, Trump and China officially signed the phase one deal, which included commitments from China to purchase U.S. goods, easing trade tensions. The finalization of the phase one deal reassured markets, leading to a continued rally in SPY. The market viewed the agreement as a de-escalation of the trade war. President Trump's willingness to negotiate and finalize the deal signaled a market-sensitive approach to his policies.
Notable Tweet “As usual, China said they were going to be buying “big” from our great American Farmers. So far they have not done what they said. Maybe this will be different!” – Trump, Aug 13, 2019
Notable Tweet “We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder....” – Trump, Dec 13, 2019
7. March 2020 - COVID-19 and Economic Stimulus
Event: The onset of the COVID-19 pandemic in early 2020 led to unprecedented market volatility. SPY saw sharp declines in March 2020 as the pandemic spread and concerns about a severe economic downturn grew.
Trump’s Response: As markets continued to fall, Trump shifted his stance and began pushing for significant economic stimulus packages, including direct payments to Americans, support for businesses, and expanded unemployment benefits. This massive fiscal response, coupled with Feds actions, helped stabilize SPY, leading to a recovery in the subsequent months.
Notable Tweet “The United States will be powerfully supporting those industries, like Airlines and others, that are particularly affected by the Chinese Virus. We will be stronger than ever before!“ – Trump, Mar 16, 2020
8. May 2020 – US-China Trade Relations Amid COVID-19
Event: In May 2020, amidst the ongoing pandemic, tensions between the U.S. and China flared again. President Trump criticized China for its handling of the COVID-19 outbreak and hinted at the possibility of ending the phase one trade deal. This created renewed uncertainty, leading to a dip in SPY as markets feared a re-escalation of the trade war during an already fragile economic period.
Trump’s Response: After markets reacted negatively, President Trump softened his tone, stating that the trade deal was "intact" and expressing a desire to maintain the agreements. This clarification was crucial in calming market fears and helped SPY recover once again.
Notable Tweet “As I have said for a long time, dealing with China is a very expensive thing to do. We just made a great Trade Deal, the ink was barely dry, and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference - and all those innocent lives lost!” – Trump, May 13, 2020
Notable Tweet “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!“ – Trump, Jun 22, 2020
9. August 2020 - TikTok and Tech Stocks
Event: In August 2020, President Trump issued an executive order to ban TikTok in the U.S. unless its American operations were sold to a U.S. company, citing national security concerns. This action caused market jitters, especially among tech investors, due to fears of increased regulatory crackdowns on Chinese technology companies.
Trump’s Response: Following market uncertainty, President Trump softened his stance by approving a deal that would allow Oracle and Walmart to take stakes in TikTok's U.S. operations, effectively avoiding a full ban. This move helped mitigate market fears of further tech disruptions and contributed to a recovery in SPY, especially tech-heavy sectors.
“I have given the deal my blessing. If they get it done, that's great; if they don't, that's ok too. I approved the deal in concept.“ – Trump told reporters on the White House South Lawn (Sep 2020)
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