Fixed-income markets used to be considered the savvy investor's version of the smartest kid in the class.
Treasury yields, it was often said, act as a daily referendum on the sitting government, credit spreads provide the surest and most dispassionate assessment of corporate health, and bond vigilantes were the last line of defense against rogue politicians or company CEOs bent on pursuing damaging spending policies.
James Carville, the iconic political consultant and architect of Bill Clinton's presidential victories in the 1990s, once famously opined that he'd like to come back in another life as the bond market because "you can intimidate everybody."
Bond traders have taken a back seat to their stock market brethren in both holding President Donald Trump's economic policies to account and providing a real-time barometer on the risks to both domestic- and global-growth prospects.
President Donald Trump rang the opening bell at the NYSE three months ago. Since then the S&P 500 has lost more than $5 trillion in value. Anna Moneymaker/Getty Images
The S&P 500 in fact posted its fastest correction since Covid this week, falling just over 10% from its mid-February peak, and its seventh-fastest correction since 1929 as investors pulled the cord on risky bets amid the Trump tariff chaos.
$5 trillion 'Trump slump'
The broader slump, which dragged the tech-focused Nasdaq into correction territory last week, has incinerated more than $5 trillion in stock market value. That's around $20,000 for every 401(k) plan in the country.
It's also an arresting contrast to Trump's first term, which saw the S&P 500 gain 9.7% from its Election Day close to March 14, 2017. Today, the benchmark is down 4.5% over that time frame.
Bond markets, meanwhile, seem decidedly undecided, with the difference in yield, or spread, between benchmark 2-year and 10-year notes trading at around 33 basis points, roughly the same level seen at the end of last year. That's even as the risk of recession has risen sharply over the past two and a half months.
And even with a staggering debt burden of $36 trillion, a looming debt-ceiling standoff and the prospect of a government shutdown, investors earlier this week still placed bids valued at more than $100 billion for a $39 billion auction of 10-year notes.
Credit spreads, which track the premium that investors demand to hold riskier corporate debt over risk-free Treasury bonds, are starting to reflect some of the stock market's slump, but remain notably tight by historic standards.
So why are we seeing the stock market supplant its know-it-all cousins on the fixed-income side in reflecting both the broader economic risks and the pullback in consumer sentiment tied to myriad Trump policy objectives?
Stocks are the stoics
Michael Cembalest, chairman of market and investment strategy for JP Morgan Asset Management, put it this way in a note to investors this week:
"The stock market cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or defunded; it cannot be primaried before the next midterm elections; and it cannot be seized, nationalized or invaded.
"It's the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation, taxation and predictable rule of law."
Stock indexes are also much easier, and intuitive, for the general public to understand. Prices and levels go up when things are good, down when they're not. Everyone's heard of the Dow. Far fewer can tell you want a 10-year yield is.
This could be why Trump — who consistently used the stock market to benchmark his performance during his first term and declared that early gains last year were directly tied to his lead in the polls —now claims to be paying very little attention to the daily referendum on Wall Street.
His decision to ring the opening bell at the NYSE late last year was also no accident, as stocks were marching higher following his November election victory and Wall Street analysts were largely unified in their assessment of what they called his pro-growth agenda.
“You can’t really watch the stock market," Trump told Fox News last week in what seems like a significant change of heart. "You can’t go by that. You have to do what’s right.”
Stocks are about sentiment: economist Krugman
That might be true, of course, but it flies in the face of the president's assurances that his economic policies would be successful "from day one."
(In his recent address to Congress, Trump also warned consumers that because of his economic policies, "There may be a little disturbance.”)
And Trump's remark to Fox could also explain the stock market's visceral reaction to the on-again, off-again nature of the president's tariff strategy; the inaccuracies and opacity in Elon Musk's Doge effort; and the rejection of foreign-policy norms that have the president making remarks about annexing Canada, purchasing Greenland, and voting alongside Russia and North Korea against a U.N. resolution in support of Ukraine.
The Nobel economics laurate and former New York Times columnist Paul Krugman suggests, however, that the stock market's reaction to Trump might be indicating something less tangible.
"Let’s be clear: The stock market is not a good measure of how the economy is doing," Krugman said in a recent Substack post. "It is, however, an indicator of the mood of people with a lot of money to invest.
"Trump won the election because a number of people believed, wrongly, that he would do great things for the economy," Krugman said in a separate post. "It has taken him less than two months to squander all that undeserved trust.
