Trump's bear market

Politico

10-03-2025

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QUICK FIX
Wall Street is getting heartburn from Trump 2.0. The soothing effects of new tax cuts and clarity on future tariffs remain elusive.
'Investors are kind of struggling with this concept of the Trump administration really reindustrializing the U.S. economy. The suspicion was that it was more bluster or talk, and now it seems like they're moving forward with a plan to reindustrialize the US through tariffs,' Noel Dixon, a senior macro strategist at State Street, told MM.
At the beginning of the year, market participants were more focused on 'the positives' of what President Donald Trump had on offer: deregulation, plus favorable tax and fiscal policies, Dixon said. Tariffs were considered a secondary priority.
'Now, we're getting the reverse,' he said.
Major stock indices have notched meaningful losses since mid-February, when the realities of Trump's trade policies began to take root. The S&P 500 and Dow Jones Industrial Average both slipped by more 5 percent from recent historic highs, and the tech-focused Nasdaq entered correction territory on Friday — a clear sign that policy-related turmoil is hammering investor confidence despite Trump's (temporary) reversal on some of the most punishing levies placed on Canadian and Mexican imports.
Jan Hatzias, the chief economist and head of global investment research at Goldman Sachs — who's been one of the more bullish prognosticators on the U.S. economic outlook in recent years — on Friday estimated that Trump's tariff regime could push personal consumption expenditures inflation up to around 3 percent while denting year-on-year gross domestic product by about 0.8 percent. Financial industry organs like Bloomberg and The Wall Street Journal ran stories over the weekend positing that Wall Street's bets on American exceptionalism, which powered the outperformance of U.S. equities, are winding down.
Most economic forecasters still expect the U.S. economy to grow this year. But Trump didn't dismiss the possibility of a recession out of hand when asked about it during an appearance on Fox News on Sunday.
'I hate to predict things like that. There is a period of transition, because what we're doing is very big,' he told Fox News host Maria Bartiromo (who he recently appointed to the board of the Kennedy Center). 'We're bringing wealth back to America. That's a big thing. And there are always periods [where] it takes a little time. It takes a little time, but I think it should be great for us.'
(Ironically, as Brian Swint of Barron's notes, the Trump administration's tactics — which prompted Germany's Chancellor-in-waiting Friedrich Merz to announce a plan to spend around $1 trillion on infrastructure and defense — has underpinned 'a giddy optimism in German markets not seen in decades.')
Trump administration officials like Treasury Secretary Scott Bessent have acknowledged that the effects of the new administration's agenda — both in terms of trade and Department of Government Efficiency reductions — will push up prices and create 'detox'-related disruptions in the broader economy. But if the market's appetite for those disruptions is already starting to turn, it could spell trouble for Trump and congressional Republicans as they move to deliver on stimulative tax policies and deregulation. The former remains a heavy lift, particularly with GOP leaders largely focused this week on a seven-month funding patch that prioritizes spending on deportations, veterans' health care and the military and slashes programs prioritized by Democrats.
Bessent last week made clear that he's well aware of the economic and market pressures to deliver on tax reform, in particular. And if the markets perceive any lack of giddy-up to extend Trump's 2017 tax cuts — and deliver on pledges to include new, lucrative deductions — the Republicans may suffer political consequences in 2026 midterms. (Trump believes one of the reasons the GOP saw losses in 2018 was because the Tax Cuts and Jobs Act 'wasn't the focus' in the first half of 2017.)
'The closer we get to the tax bill expiring, the more the, what I would call an uncertainty tax goes up,' Bessent said during a Q&A with Larry Kudlow at an Economic Club of New York event. 'The longer we wait, the bigger the chance that the unthinkable could happen and we could have this catastrophic tax increase.'
IT'S MONDAY — Your host's lede paragraph may have had something to do with the massive quantities of rigatoni, meatballs and grappa he consumed with Victoria Guida on Friday evening. Send econ policy thoughts, Wall Street tips, personnel moves, general thoughts and grappa recommendations to [e-mail].
Driving the Week
Monday … Acting Federal Deposit Insurance Corp. Chair Travis Hill, acting Securities and Exchange Commission Chair Mark Uyeda and Rep. Kevin Hern (R-Okla.) will speak at the Institute of International Bankers' annual conference …
Tuesday … The NFIB optimism index will be released at 6 a.m. … The JOLTS report for January will be released at 10 a.m. … The House Financial Services Committee holds a hearing on stablecoins at 10 a.m. … The House Small Business Oversight, Investigations, and Regulations Subcommittee holds a hearing on the Small Business Administration at 10 a.m. … New York Financial Services Department Superintendent Adrienne Harris speaks at a Brookings Institution event at 11 a.m. …
Wednesday … The Labor Department will release the Consumer Price Index for February at 8:30 a.m. … Senate Banking holds a hearing on housing affordability at 10 a.m. …
Thursday … The Committee for a Responsible Federal Budget holds a virtual discussion on 'The Dangers of the Current Policy Baseline Gimmick' at 2 p.m. …
Friday … The University of Michigan's preliminary consumer sentiment estimate for March will be released at 10 a.m. … RSM holds a virtual discussion on tariffs, trade and the economy at 1 p.m.
Narrow path — As Federal Reserve policymakers weigh the effects of Trump's policy barrage – which could simultaneously cause prices to climb and slow growth — Chair Jerome Powell said Friday that he's in wait-and-see mode. 'As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves,' he said in remarks in New York, per Victoria.
Sweepstakes — Trump also told Bartiromo that he'd be picking a a new top regulatory official at the Federal Reserve 'fairly soon,' Michael Stratford reports.
Glad we cleared that up — With Elon Musk's Department of Government Efficiency remit under fire in the courts, top Republicans are now echoing the Trump administration's assertion that the billionaire can't give orders to Cabinet members, reports Amanda Friedman. 'Elon Musk does not have the power to fire people,' Sen. Rick Scott (R-Fla.) said during an appearance on CNN on Sunday. 'The president of the United States is Donald Trump, and the agency heads are the ones who manage each of their departments.'
— A little more on Musk: The NYT's Jack Ewing, Mara Hvistendahl and Ana Swanson report that tariffs are 'one of several measures adopted by the Trump administration that may benefit Tesla at the expense of its rivals.' The FT reports that Chinese investors are taking larger stakes in Musk's businesses.
Current policy — As Republicans seek a path forward on Trump's tax agenda, The Joint Committee on Taxation said the use of 'current policy' to score future legislation would be unprecedented, Brian Faler reports. The maneuver may put 'Republican leaders on a collision course with the Senate's parliamentarian, who interprets the chamber's rules,' Brian writes. 'The current parliamentarian, Elizabeth MacDonough, has not weighed in on the issue publicly, but she has a reputation for being strict and many close watchers are skeptical she will allow it.'
Carney's ascent — From Mickey Djuric and Nick Taylor-Vaisey: 'Mark Carney, a political rookie but experienced banker with a history of helming state financial institutions during crises, won the race to replace Justin Trudeau on Sunday.'
Crypto
House Rs roll out updated stablecoin bill — House Financial Services Republicans rolled out an updated version of legislation to create a regulatory framework for stablecoins on Friday, as lawmakers quickly race to advance crypto legislation in the opening months of the new Congress, Jasper Goodman reports.
The rollout comes as the Senate Banking Committee is hoping to mark up a similar stablecoin measure this week. Rep. Bryan Steil, the chair of a House Financial Services digital assets subcommittee, indicated his panel is not far behind. He said in an interview outside the White House's crypto summit on Friday that he expects a markup 'in the near future.'
Steil also he and House Financial Services Chair French Hill hope to unveil crypto market structure legislation that would create a light-touch regulatory framework dividing oversight of digital assets up between regulators 'in the not-too-distant future.'
In separate crypto news, Steil, Hill and Rep. Ann Wagner (R-Mo.) wrote to the SEC on Friday to outline their recommendations for how the agency can boost the crypto industry.
Hammer time — Republican-led efforts to pass industry-friendly crypto market rules face a new headwind from Trump's order to create new, federal stockpiles of digital assets, Jasper and Declan Harty report: 'Fractures over Trump's actions from within the crypto industry and among crypto-friendly lawmakers could complicate efforts to enact policies benefiting digital asset firms.'
Too legit to quit — Still, the industry is notching wins. Michael Stratford reported on Friday that acting Comptroller of the Currency Rodney Hood rescinded a Biden-era requirement for banks to seek permission from regulators before engaging in cryptocurrency activities.
Can't touch this — Crypto industry executives contended that the Biden-era guidance contributed to debanking. Shortly before many of the industry's elite convened at the White House for Trump's crypto summit, Eric Trump announced that The Trump Organization was suing Capital One for 'debanking' the president's businesses in 2021, Stratford and your host report.
At the regulators
DOGE at Treasury — More from Stratford: 'A federal judge on Friday dissolved an order restricting how the Treasury Department's DOGE team can access federal payment systems, finding that there wasn't enough evidence any sensitive private data was at imminent risk of disclosure.'
No relation — Toby Eckert reports that the Trump administration asserted in federal court that the decision to sideline Internal Revenue Service's chief human capital officer was unrelated to a lawsuit that challenged the Office of Personnel Management's authority to fire workers at other federal agencies.
Not so merry men — From Declan Harty: 'Wall Street's industry regulator said Friday that Robinhood has agreed to pay nearly $30 million to settle numerous rule violations, including the failure to properly set up an anti-money laundering program.'