US market flirts with correction

Losses in Wall Street’s S&P 500 continue to pile up as Trump indicates a willingness to tolerate market losses in the pursuit of a 'long-term’ focussed trade policy.

Following the election, the market rallied. The S&P 500 hit consecutive all-time highs in response to Trump’s election due to his history of business friendliness and reputation for using the market as a barometer of US performance. 

Investors expected pro-business policies such as deregulation allowing for higher efficiency and larger profit margins. 

However, Trump seems to have forgotten a lot of these promises, instead dedicating his time to international policy, such as the tariffs-turned-trade-war and the Russia-Ukraine war. 

This has greatly reduced investor confidence in US equities, which received a boost in valuation on the presumption that Trump would actually follow through with his promises to business. For an extended analysis of how Trump’s flip-flopping has cost the US, see ‘Could the euro dethrone the dollar?’.

Investors also expected Trump to approach the markets similarly to how he did during his first term, using them as guardrails to maintain business-friendly policy. 

During his first term, he would often brag about how his administration had caused positive stock performance. The BBC even recently released a compilation of Trump bragging about stock market performance throughout his entire last term and on the campaign for the most recent election. 

During his election campaign, he went as far as to attribute a bout of poor stock performance under the Biden administration to the United States being ‘very very sick’.

This is ironic as he has recently done a complete U-turn on his historical approach, now claiming to be ‘not even looking at the market’ due to his focus on the long term. 

This has spooked investors, as Trump frees himself of the guardrails that have for many years kept him acting in an investor-friendly way. 

He even failed to rule out enduring recession to pursue his long-term goals in a recent interview, sparking a large sell-off on Monday, the biggest single-day selloff so far this year.

Investor fear is already manifesting itself in the markets, as the S&P 500 flirts with a 10% decline from its post-election peak, constituting the first market correction since 2023.

S&P 500, 1 month. Source: Google Finance

This can also be seen in CNN’s aptly named fear and greed index, which has plunged to a reading of extreme fear.  

Source: CNN Business

For the time being fearful investors continue to ask themselves, how much of a battering will he allow the markets to endure before he re-applies the guardrails and lends Wall Street a hand?