100 days in, these are the 3 ways the Trump trade fell apart

Business Insider

29-04-2025

Money managers came into President Donald Trump's second term on the promise of tax cuts, DOGE savings, and pro-growth policies that would juice the stock market.
Many viewed tariffs as an afterthought.
"This might cause some market volatility, but we don't think it will derail US growth," Solita Marcelli, chief investment officer for UBS Global Wealth Management, said of Trump's tariff plans at a conference in November last year. "Let's not forget that during his first term, president-elect Trump was quite responsive to market reactions."
One hundred days after Trump's inauguration, the S&P 500 is down 10% from record highs, banks across Wall Street have raised recession odds, and investor sentiment is overwhelmingly negative.
How did it all go so wrong? Here are the three lessons Wall Street has learned the hard way over the last 100 days.
Tariffs are a bigger-than-expected focus
Wall Street got the biggest piece of the Trump agenda wrong: tariffs.
Trump's approach during his first term might have given investors a false sense of confidence and predictability.
"In his first term, he gave you all the good stuff first. He gave you the tax cuts, he started deregulating, and then he started focusing on the tariffs, and I think a lot of people expected that to happen again," James St. Aubin, chief investment officer at Ocean Park Asset Management, told Business Insider.
Instead, investors were slammed with executive orders levying tariffs from the start. The final extent of Trump's tariffs still remains to be seen as the president negotiates with other countries during the 90-day pause, but investors are no longer brushing off tariff concerns as an empty threat.
Some strategists remain optimistic. Jeff Schulze, the head of economic and market strategy at ClearBridge Investments, was surprised by the magnitude of the president's tariff policy. However, in a recent Franklin Templeton podcast, Schulze compared tariffs to the "spinach portion of the administration's dinner" — a necessary evil preceding "the dessert portion, which is deregulation and tax cuts."
Others are mapping out a worst-case scenario. Torsten Slok, Apollo's chief economist, believes that a tariff-induced recession could begin materializing by May as shipping traffic to the US slows to a halt.
Trump is focused on bonds over stocks
Investors initially believed Trump's tariff rhetoric would be checked by his desire to encourage growth in the stock market, meaning he wouldn't do anything crazy enough to spook equities.
Now, it's a different story. Trump's proven that he's willing to let stocks plummet — but he draws the line at rising yields in the bond market. Twice now, Trump has walked back some of his more extreme policies after a spike in Treasury yields — once after his Liberation Day tariffs, and again after he threatened to fire Jerome Powell.
"The focus is now really on the bond market, and he's willing to accept more pain and volatility in the short term on the equity side as long as the 10-year doesn't start to creep back higher toward 5% again," Jonathan Curtis, chief investment officer of the Franklin Equity Group, said. "His tolerance for pain in the equity markets is particularly high."
Why is the 10-year US Treasury yield coming into focus as the trade war rages on? Foreign buyers of US debt might be less inclined to continue holding US bonds if their countries are slapped with heavy tariffs, which means the US will have to offer higher yields to entice buyers, St. Aubin said.
That's the opposite of what Trump, who's prioritizing lowering interest rates, wants. A lower 10-year Treasury yield will stimulate the economy by bringing down mortgage rates, business loan costs, and the price of financing government debt, Curtis and St. Aubin said.
The AI-led market hype wasn't guaranteed to continue
With the Magnificent Seven carrying the S&P 500 throughout 2023 and 2024, it seemed reasonable to assume that Trump's pro-business stance would keep the Big Tech rally going. But investors failed to consider the extent to which tariffs would severely damper almost every aspect of the market.
As trade relations worsen, America's AI darlings — or any large American company for that matter — are at risk of being targeted by countries unhappy about tariffs, according to St. Aubin. If Trump makes it harder for imports to enter the US, foreign countries might push back with retaliatory tariffs and stop buying American goods as well. For example, Tesla is seeing plunging sales in China as local companies like BYD snatch up market share.
Another large concern for the Magnificent Seven firms has been how globally integrated their supply chains are for their tech products.
But on top of the trade war, growing competition in the AI space has called into question the swaths of cash these companies have thrown at building out the technology.
The Trump-driven market chaos is confounding, considering tech CEOs and billionaires curried favor with the president leading up to the inauguration, Curtis said, only to see their company stock prices plummet since then.
"We saw a number of the tech leaders show up on Inauguration Day, and so it has been with some surprise that things have gone the way they have gone, particularly around the tariffs and even with some of the legal cases that are continuing forward with Meta and Google," Curtis said.