- Trump’s tariffs don’t explain the market selloff…
- Follow the money printer…
- Have you heard? About how page 1,943 of the U.S. tax code can LEGALLY save you thousands in taxes this year?
Dear Reader,
“Wall Street should have known better than to trust Donald Trump.”
There you have the judgment of a certain Helaine Olen.
Ms. Olen authors a column for The Washington Post. More from whom:
- The stock market rose to record heights after Donald Trump’s 2024 re-election. Wall Street reveled in Trump’s promises of even more tax cuts and defanged regulators, not to mention making the world safe for saying all those politically incorrect thoughts about DEI. What could go wrong?
- Plenty, it turns out. Trump’s only been in office two months and the S&P 500 is lower than it was before Nov. 6 and in correction territory.
Ms. Olen’s claims are the consensus claims.
Yet I am deeply distrustful of consensus claims.
Thus I am far from convinced Ms. Olen’s claims hold juice.
Why Did Wall St. Get It so Wrong?
We are told incessantly the stock market is “forward-looking.”
It shames all crystal-gazers, all future-seers, all readers of bird entrails.
Candidate Trump did not conceal his enthusiasm for tariffs. He promised them and with gusto.
Meantime, we are told tariffs frighten the animal spirits.
The stock market abhors tariffs in the way that vampires abhor garlic cloves… or agents of Satan abhor water blessed by a priest.
Why then did the stock market burst into dance upon Mr. Trump’s election?
Should not stocks have retreated in panicked alarm?
Why did they take such dreadful fright only in late February?
“That claim is just not credible”
Here the thoughts of Mr. John Rekenthaler — Morningstar’s vice president of research — are my thoughts:
- Excise taxes are scarcely a surprise! President Donald Trump repeatedly promised to impose tariffs during his campaign, then reiterated that intent shortly after the election. Despite his proclamations, stock prices soared from August through December.
- Consequently, there’s no feasible argument that, in late February, investors were suddenly splashed with the cold water of impending tariffs. One need not genuflect to the efficient-market hypothesis to doubt the argument that three months after Trump was elected president, investors would collectively mark down technology stocks by 15% because, at long last, they got around to doing the tariff math.
- That claim is just not credible.
Thus my head nods in rather violent agreement. The claim is not credible.
Either the stock market is not the Edgar Cayce its drummers claim it to be — it failed to foresee Mr. Trump’s tariffs — or it was not especially alarmed by them.
We may conclude, reasonably, that the president’s tariffs alone do not explain the stock market’s recent wobbles.
Further Vindication
I may be mistaken of course. I do not claim vast expertise in the wizardries of Wall Street.
I would be a sort of stock market Rockefeller if I commanded such expertise.
Alas, I am not. And I do not.
I am instead a quarterback in an armchair, given to the simplifications, half-truths, errors and pomposities of the type.
Yet here I find additional vindication in economist Danial Lacalle:
- The consensus narrative tells you that markets are weak because of Trump’s tariffs. However, that is a typical excuse that makes no sense. If tariffs were the cause of concern, markets would have tanked in 2016 and in 2021.
- Remember that Biden maintained and increased all of Trump’s tariffs. Between 2016 and 2024, the tariffs imposed by the European Union and China on the United States were much larger than levies against them. However, you never read or heard that the EU and China tariffs were going to destroy the economy or lead to massive inflation.
It is true. The mainstream media never alerted us to the menaces of European and Chinese tariffs.
They shriek only when tariffs are imposed by the United States.
The True Answer Emerges
Why then has the stock market shed so much steam of late?
I must confess that Senor Lacalle’s arguments — the fellow is a Spaniard — seduce me.
They run this way:
- The reason why markets are so volatile is because few know what to do when inflation remains persistent. The Fed panicked twice in 2024 and conducted a misguided dovish policy. It delayed the reduction of the balance sheet in June despite rising inflation expectations and loose financial conditions.
- In September, the Fed decided to implement an unjustified large rate cut despite concerning core inflation figures and exceedingly loose financial conditions, the loosest in five years. The Fed’s excessive optimism about the disinflation path led to a significant increase in margin debt and exposure to equity markets.
I have written recently about the vast surge in margin debt. A massively leveraged stock market is a house of playing cards that could collapse in a heap once the initial card goes over.
The Fed Turns Once Again Turns Hawkish
More:
- Consensus estimates assumed three or four rate cuts in 2025. However, in November the Fed went hawkish and started to worry about a persistent inflation that was already evident in its previous two dovish moves.
- Markets did not care and continued to believe that inflation would drop magically despite soaring deficit spending and record debt as well as the highest money supply growth in twenty months.
- By January, market participants started to worry about persistent inflation. The Fed decided to be serious about inflation and provide hawkish messages coinciding with the end of elections.
About the Fed’s “Independence” From Politics
Perhaps you have heard that the Federal Reserve claims independence from politics.
Here Senor Lacalle plunges a fatal stake into that feeble heart:
- Were you not surprised to see how the Fed was unusually dovish and optimistic throughout the campaign and elections and suddenly went hawkish and tightened monetary policy once the new administration entered into office? “Higher for longer” was halted, surprisingly, in the middle of an election, and now it is back. Shocker.
A shocker indeed.
Here is another question: If tariffs are the universal foes of markets… why are foreign stock markets presently on the jump?
- Why are markets rising in Europe and falling in the United States? Not because of tariffs. If that were the case, bonds would have risen in Germany and Japan, and the stocks that benefit from those tariffs would have risen. The answer is simpler: market participants are betting on a hawkish Fed and a very dovish ECB and PBOC.
- Follow the money printer. Many market participants are scared of persistent inflation but aim capital flows to the markets that may benefit from more money printing, as is the European case, and stimulus plans, like China.
Follow the money printer!
Blame Where Blame Is Due
Now you know, in my estimation, why the stock market has absorbed such rattles of late.
It fears the Federal Reserve is stowing the money printer. And it does not like it.
Thus I advise you to put down the newspaper blaming Mr. Trump’s terrible tariffs.
Blame instead the Federal Reserve.
If you seek an overall account of stock market conduct, you can generally look to the central bank.
You will be correct nine times of ten.
Brian Maher
for Freedom Financial News
