The behavior of markets can be condensed into a simple philosophy: they adeptly deal with positive and negative events, but uncertainty is what tends to stump them. On November 5, 2024, an event unfolded that amplified this uncertainty – Donald Trump was re-elected as President of the United States, returning to the White House after four tumultuous years. Though the moment was not devoid of contention, it also underscored a stark political reality: the American fabric was witnessing unprecedented division.
This political divide notwithstanding, there exist those particularly within the realm of finance, who found solace in Trump’s approach to governance. They were content with his fiscal policies, particularly his penchant for lower taxes, reductions in public spending, and analogous measures that would stimulate the business environment, including trimming interest rates. Many among them were confident that the staggering national debt, hovering around $36 trillion, could still be managed and serviced.
Trump’s knack for strategic placements was evident in his choice of council members. Notably, his team was predominantly comprised of devoted supporters, a considerable number of whom were political novices. One example includes Elon Musk, the Tesla trailblazer and business magnate, who despite not being an official element of the government, was deputized to streamline government efficiency.
Despite these atypical appointments, the initial response from Wall Street was positive. By inauguration day on January 20, 2025, both the NASDAQ and S&P 500 were experiencing robust growth. However, this upward trajectory proved short-lived, as investors began to reassess their optimism.
In the time that followed, the market experienced a palpable sell-off. Controversial decisions like Trump’s support for Putin and his sanctions against Canada and China, drove a wedge between the US and its traditional allies in Europe. The implementation of these tariffs, predicted to trigger global inflation and risk recession, flared a ‘run to the hills’ sentiment amongst anxious investors.
There were fears about a potential ripple effect, for countries not directly implicated by the trade tariffs could still suffer due to disruptions in their supply chains. Additionally, an inevitable hike in defense spending around the globe presented another worrying prospect. However, within the US, Trump’s strict approach to public sector expenditure was welcomed, even though many of the supporters often overlooked the implications of such stringent policies.
Views about the 47th president from the global stage were less favorable. Many began to liken him to a mafia boss, ‘Don Corleone’, rather than seeing him as the democratically elected Commander-in-Chief. One aspect that proved puzzling was the apparent lack of resistance from the Democratic party, which was perceived as alarmingly quiet and subdued, especially to international observers.
Since inauguration day, the erratic behavior of global indices pointed to doubts regarding the future of the US markets. The NASDAQ, wiping out its year’s gains, faced a 5.5% drop as of last Friday. A notable slump was also observed in the stocks of Tesla, Nvidia, Amazon, and Alphabet, estimated at around $1.3 trillion in total.
While other international markets showed some resistance, Tokyo’s NIKKEI was less successful, mainly due to the strengthening of the Yen coupled with higher interest rates. The Hang Seng index in Hong Kong, however, was experiencing a bullish run due to resilience in tech stocks and strong competition in AI technology.
Despite a mediocre economic outlook for Germany and France, their markets – the Xetra DAX and the CAC 40 – demonstrated significant resilience. The FTSE, being an international index, was dependent on multiple factors such as the value of the pound, the reinvestment in Dollar and Euro by international investors, and the valuation of the constituent companies.
In the aftermath of Brexit, international investors had been discounting these companies in comparison to their American counterparts. The UK’s mining, energy, and telecom sectors were among the most significant underperformers over the last year. Furthermore, the FTSE was at a competitive disadvantage as tech companies played only a minor role in the index, overshadowed by companies like Relx, Sage, Intertek, and Convatec.
Even within stagnant sectors, certain industries like healthcare and retail managed to make steady contributions. Interestingly, European banks had a strong showing this year, a complete reversal from the previous year when the spotlight was on banks in the UK and the US. Moreover, insurance companies along with tech and healthcare sectors were demonstrating significant growth.
Despite these seemingly positive trends, equity markets remain unsettled and volatile. A sense of anticipation or even dread dominates, while the key to stability seems to be held by one individual – President Donald J Trump.
The NASDAQ has stumbled into correction, with the S&P 500 not far behind. President Trump is known for his affinity for wealth creation, approaching every decision as a potential business deal. The hope remains that the pragmatism of a businessman will eventually supersede, bringing some semblance of balance back into the market.
Yet, the future is still enveloped in a fog of uncertainty. Immediate solutions are not readily perceptible. The world watches and waits, while markets attempt to brave the evolving economic dynamics tied so inseparably to the actions of one man.