After the euphoria, the hangover? The Trump effect breaks on Wall Street with a downward week, after the rebound that followed the November 5 elections. The two responsible are Donald Trump himself, after controversial appointments, particularly in Defense and Health, and especially Jerome Powell, president of the Fed, the US central bank, who indicated that he was in no hurry to continue lowering interest rates. As a result, Wall Street fell sharply on Friday (1.55% for the S&P 500, which represents large companies, 2.6% for the technology-rich Nasdaq).
There was a small air of déjà vu, the day after the November 5 elections marked by the election of Donald Trump. Wall Street soared, as it had eight years earlier. Thus, the stock market began to break records. The S&P 500 rose 5% that week, while the Nasdaq and the Dow Jones, which represents very large companies, gained more than 6%.
Oddly enough, at the same time interest rates were rising, which drove down bond prices. Ten-year rates have increased from 4.28% to 4.48% since the election. There is a contradiction in this matter. Typically, when rates rise, stock prices fall because the value of future earnings is lower and the cost of financing companies increases.
This paradox is explained by a double Trump effect. In the short term, his final election removed uncertainty for businesses and investors who feared that the election, whatever the outcome, would be contested for months or even weeks, bringing the country to the brink of civil war and crippling the economy. .
This risk suddenly disappeared, logically causing Wall Street to rise. Then, after Trump had comfortably won the Senate and finally the House of Representatives, the stock markets welcomed his program: they promised a reduction in the corporate tax rate from 21% to 15%; commitment to massively deregulate the US economy by reducing environmental, financial and competition regulations; protection of American companies from competition with tariff barriers of 10% against the planet and 60% against China.
Pessimism in bond markets
Except the bond markets had another reading, much more pessimistic in the long term. For them, Trump’s program, with its customs tariffs and mass expulsions of non-regular workers who keep the economy going, heralds the return of inflation. October’s figure was also lackluster, with prices up 2.6% in one year. Understandably, Jerome Powell was cautious during a conference in Dallas on November 14: “The economy is not sending any signal that we should rush to lower rates,” Mr. Powell said.
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