No Trump Put, For Now?

The market narrative during the last month has been consistent with the expectation we

shared in our last client letter, that policy volatility will lead to market volatility. As of last

Friday, the S&P 500 and Nasdaq Composite were down -6.0% and -9.3%, respectively,

from their February highs as President Trump began to implement his new tariff plans, a

central component of his economic plan.

Given Trump’s unique style of public negotiation and his back and forth with other

leaders, the tariff implementation has been challenging to keep track of. This itself can

be difficult on financial markets, as investors love policy certainty and clarity.

To summarize the tariff news so far: on February 1, Trump signed executive orders

imposing a 25% tariff on all goods imported from Canada and Mexico, with a 10% tariff

on Canadian energy products. Initially scheduled to take effect on February 4, they were

delayed by a month. The Administration also imposed an additional 10% tariff on

Chinese imports, which is on top of the existing 25% tariff on many Chinese goods. And

on February 10, 25% tariffs on steel and aluminum imports from all countries were

announced; they’re scheduled to take effect this week. And just last week, President

Trump temporarily spared Canadian and Mexican automobile imports from a planned

25% tariff. Trump has also promised that he’ll announce in April more details on

forthcoming reciprocal tariffs against any countries whose import duties are unequal to

those of that United States.

In response to a question last Thursday over whether he is creating exceptions in

reaction to the market volatility, the President said, "[They have] nothing to do with the

market. I'm not even looking at the market, because long-term, the United States will be

very strong with what's happening." (Trump expands exemptions from Canada and Mexico tariffs, by Natalie Sherman and Michael Race, March 6, 2025, BBC News.)

We believe this to be indeed the case because we view Trump’s tariff plans as policy

rather than a mere negotiating tactic to acquire concessions without any ultimate

changes in existing US tariff schedules. As such, we expect many of Trump’s desired

tariffs to be eventually implemented in an effort to create more equivalent trade rules

with the rest of the world. Of course, concessions from some countries are delaying

implementation. For example, Canadian and Mexican efforts to increase certain border

and drug anti-trafficking enforcement have won those countries temporary reprieves.

As a result, the tariff implementation process could take many months (or even longer)

which could lead to more sawtooth movements in financial markets.

The President’s comment last week that he isn’t paying attention to the stock market

belies his reputation as a stock market president. It also raises an important possibility:

perhaps the “Trump put” is gone from the market, at least for now.

Last Friday, Treasury Secretary Scott Bessent followed up on that notion on CNBC. He

said: “There’s no put. The Trump call on the upside is, if we have good policies, then the

markets will go up.”

Bessent then alluded to the idea of a Biden-Trump economic transition: “Could we be

seeing that this economy that we inherited starting to roll a bit? Sure…Look, there's

going to be a natural adjustment as we move away from public spending to private

spending. The market and the economy have just become hooked, and we've become

addicted to this government spending. And there's going to be a detox period.”

It appears that the Trump Administration’s current economic view is that it must reduce

government spending (to limit higher interest rates), rebalance trade relationships (to

equalize trade levies), and extend the 2017 tax cuts (to maintain current incentives to

produce). And, if the economy is already slowing and there is some friction from the

Biden-Trump policy transition that aims to reduce government largesse and create “fair”

trade rules, so be it.

One could argue from the Administration’s view that any near-term economic and equity

market weakness will even reinforce the case for the Fed to cut interest rates later this

year, which could then set up the economy (and the Administration) favorably in 2026.

This logic seems consistent with Bessent’s comments in a Fox News interview in early

February when he told Larry Kudlow: “The President wants lower rates… He and I are

focused on the 10-year Treasury and what is the yield of that.”

With stock markets at historically elevated valuations and not far from all-time highs and

with the economy slowing at the margin, perhaps the Trump Administration is playing

with the house’s money. “Risk-on” investors should take note. While we don’t believe

the Administration’s view is permanent, it seems -- for now -- more focused on lower

Treasury yields than the general level of the stock market.