(Bloomberg) -- As stocks bounced to record highs last month despite threats from President Donald Trump’s trade policies, sticky inflation and a suddenly fragile economy, strategists theorized an invisible hand was at work: Trump’s.
The thinking was that the US president’s penchant for using the stock market as a report card meant any policy that rattled investors would cause him to quickly ditch the plans. Various Wall Street firms guessed how much pain Trump could tolerate in the S&P 500 Index before retreating. That index level became known as “the Trump put,” in reference to a put option.
But now that stocks are tanking, wiping out all their gains since their post-election surge, Wall Street pros are starting to question if there’s a Trump put after all.
“Near term, there isn’t a Trump put,” said Alexander Altmann, global head of equities tactical strategies at Barclays Plc. “Trump mentioned there might be some pain in reference to tariffs — you can read between the lines that there was going to be some household pain or economic pain.”
The S&P 500 plunged nearly 2% Monday for its worst day of the year and is down roughly 1.6% again on Tuesday as Trump slapped tariffs on Canada, Mexico and China. It’s now trading at around 5,750, below 5,782.76, where it closed on Election Day, Nov. 5. And a Bloomberg index of the Magnificent Seven tech stocks that have driven much of the S&P’s rise over the past two years, is down almost 17% from its Dec. 17 peak.
Bank of America Corp. strategists had thought the first strike price of the Trump put was the S&P 500’s closing level on Election Day, “below which investors currently long risk would very much expect and need some verbal support for markets.” But now that’s past. And the fact is, the president has been significantly less focused on the market in his second term in office than his first, so it’s difficult to gauge how much the stock market selloff is weighing on him.
Less Chatter
During his first term, Trump tweeted 156 explicit mentions of the stock market, 60 of which were in the first year alone, according to Altmann. This time around, Trump has only mentioned the stock market once since November out of an analysis of 126 social media posts on Truth Social.
“I personally believe that any sort of ‘Trump put’ in equities remains meaningfully (out of the money) lower,” Nomura cross-asset strategist Charlie McElligott wrote in a research note Tuesday. “Clients are dynamically hedging and pressing this short right now, with almost nothing he could say right now to solve this unless he completely backed down on policy.”
So far, the president has appeared unfazed by investors’ angst. US Treasury Secretary Scott Bessent expressed confidence in President Trump’s expansive plans to tariff foreign nations despite the stock market.
“With the China tariffs, I am highly confident that the Chinese manufacturers will eat the tariffs — prices won’t go up,” Bessent said. “With Canada and Mexico, I think we’re in the middle of a transition, and as you mentioned, Honda moving to Indiana is a great start.”
This isn’t exactly what happened with Trump’s tariffs during his first administration, according to economists. A 2019 working paper by the National Bureau of Economic research found that “the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018.”
Some Wall Street pros suspect it will take a more dramatic move in the S&P 500 to get Trump to flinch. JonesTrading’s Dave Lutz says the Trump put may be below 5500, down from 6,045 on Inauguration Day.
Need A Correction
“That’s when the media will start rolling headlines about the stock market being in a correction — 10% off highs,” he said. “Those headlines should get the President’s attention.”
Others agree that it may take a correction for Trump to step in.
“Obviously, we don’t know the exact number, but if we look back at Trade War 1.0, history implies the Trump put would be elected around a 10% decline in the S&P 500,” according to the Sevens Report’s Tom Essaye.
Trump has imposed 25% tariffs on all Mexican imports and most Canadian ones — except for energy products, which face a 10% rate. He also doubled his levies on China to 20%, while 25% tariffs on steel and aluminum imports are due to take effect next week. The president is also pledging reciprocal levels of tariffs on foreign nations, as well as levies on lumber, pharmaceuticals, semiconductor chips, copper and auto imports, as soon as April 2.
The bottom line is, with the US economy still holding strong and stock valuations expensive, investors shouldn’t expect Trump to come to their rescue if shares continue to tumble — at least for now.
“Regardless of whether Trump, or any president, uses the stock market as a scoreboard, that doesn’t change the fact that the market will be driven more by macro forces as opposed to one individual,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “Clearly, there was relatively high conviction that the tariffs on Canadian and Mexican goods would not take place. Now that that idea has been put to bed, markets have to face reality which, chiefly, is that uncertainty will dominate for the foreseeable future.”
