2024-11-15 20:08:00
After the euphoria, the hangover? The Trump effect is broken on Wall Street with a down week, after the surge that followed the November 5 election. The two responsible are Donald Trump himself, after controversial appointments, notably to defense and health, and especially Jerome Powell, the president of the Fed, the American central bank, indicating that he was in no hurry to further lower interest rates. As a result, Wall Street was down sharply on Friday (1.32% for the S&P 500 which represents large companies, 2.24% for the technology-rich Nasdaq).
There was a little air of déjà vu, the day after the November 5 election marked by the election of Donald Trump. Wall Street soared, as it had eight years earlier. Thus, the stock market began to break records. The S&P 500 was up 5% that week, while the Nasdaq and the Dow Jones, which represents very large companies, gained more than 6%.
Oddly enough, at the same time, interest rates were rising, pushing down bond prices. Ten-year rates have increased from 4.28% to 4.48% since the election. There is a contradiction in this matter. Normally, when rates rise, stock prices fall because the value of future profits is lower and the cost of financing businesses increases.
This paradox is explained by a double Trump effect. In the short term, his final election removed uncertainty for businesses and investors who feared that the election, whatever the outcome, would be contested for weeks or even months, pushing the country to the brink of collapse. civil war and paralyzing the economy.
This risk suddenly disappeared, logically making Wall Street rise. Then, Trump having won the Senate handily and finally the House of Representatives, the Stock Marketers welcomed his program: promised reduction in the corporate tax rate from 21% to 15%; commitment to massively deregulate the American economy by slashing environmental, financial and competition rules; protection of American companies from competition with tariff barriers of 10% vis-à-vis the planet and 60% vis-à-vis China.
Pessimism in bond markets
Except that the bond markets had another reading, much more pessimistic in the long term. For them, Trump’s program, with its customs duties and massive expulsions of non-regular workers who keep the economy going, heralds the return of inflation. The October figure was also mediocre with a price increase of 2.6% over one year. Logically, Jerome Powell was cautious during a conference in Dallas on November 14: “The economy is not sending any signals that we need to hurry to lower rates,” Mr. Powell said.
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What factors contributed to the initial positive market response following Trump’s election?
**Interview with Economic Analyst Dr. Jane Thompson**
**Editor:** Thank you for joining us today, Dr. Thompson. Following the recent election of Donald Trump and the fluctuating responses from Wall Street, can you help us make sense of these market movements?
**Dr. Thompson:** Of course, it’s my pleasure to be here. We’ve seen a very interesting dynamic unfold on Wall Street since Trump’s victory. Initially, the market reacted positively. The S&P 500 and Nasdaq experienced significant gains after November 5, reminiscent of the reactions during his previous election in 2016.
**Editor:** Right, there’s been a lot of excitement surrounding Trump’s win. What do you believe triggered that initial surge on the market?
**Dr. Thompson:** The excitement largely stemmed from expectations of pro-business policies. Investors were hopeful for potential tax cuts and deregulation that could boost corporate profits. The immediate aftermath reflected that optimism, with the S&P up 5% and an impressive 6% gain for the Nasdaq and Dow Jones.
**Editor:** However, it seems the euphoria was short-lived. What led to the recent downturn we’re experiencing?
**Dr. Thompson:** The “hangover,” as you mentioned, came swiftly. The market began to react negatively to Trump’s controversial cabinet appointments, particularly in defense and health. More significantly, Jerome Powell’s comments at the Fed hinted that lowering interest rates wasn’t a priority, which spooked investors. As rates rose, so did the cost of borrowing, leading to a negative sentiment in the stock market.
**Editor:** That’s interesting. You mentioned the rise in interest rates. Can you explain how that affects the market?
**Dr. Thompson:** Absolutely. When interest rates rise, it typically leads to higher borrowing costs for companies, which can suppress future profits. Furthermore, it lowers bond prices, leading to a reassessment of risk in equities. So, while the stock market might initially soar, rising rates can create a ripple effect that drags down stocks as investors reevaluate their holdings.
**Editor:** Fascinating insight, Dr. Thompson. Do you foresee any significant changes in the market in light of these developments?
**Dr. Thompson:** It really depends on how the new administration handles economic policies and how the Fed responds to economic indicators moving forward. If Trump’s administration can stabilize investor confidence and offer a clear economic strategy, we might see a recovery. However, volatility is likely to continue as the market reacts to any further news from both the administration and the Fed.
**Editor:** Thank you, Dr. Thompson, for your analysis. It seems we’re in for an interesting few months ahead as we watch how both the market and the administration develop.
**Dr. Thompson:** Thank you for having me! It’s certainly going to be a critical time for the economy.