Serenity now (in the stock market, for Trump)
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Given unprecedented levels of turmoil within the federal government over the first 15 days of Donald Trump's presidency, it's worth taking a beat to note how placid and sanguine the stock market has been in comparison.
Why it matters: The stock market is Trump's metric of choice when it comes to objective measures of how he's doing.
- So long as it remains somewhere in the zone between "unworried" and "sanguine," it will essentially send a message to Trump that Wall Street is perfectly fine with his actions.
- And compared with the last close before he took office last month, the S&P 500 is about as flat it can be.
Between the lines: The markets broadly believe that Trump's bark is worse than his bite.
- Multiple sell-side analysts forecast over the weekend that the tariffs on Mexico and Canada would be short-lived, for instance. In the end, they didn't come into force at all.
- In that respect the new levies are similar to Trump's announced then rescinded tariffs on Colombia a week ago or, for that matter, his announced then rescinded tariffs on Mexico in the spring of 2019.
- The modest dip with which stocks opened Monday was largely erased by the end of the session.
The big picture: The stock market's fast-twitch reflexes are well honed, but for the time being it's almost impossible for analysts to net out the potential upside from deregulation against the potential downside from tariffs and isolationism.
- On top of that is the even knottier question of whether large-scale government dysfunction will have a significantly different effect on corporate profits than small-scale government gridlock, which is generally seen as bullish for markets.
How it works: The stock market reacts quickly to perceived changes in easily quantifiable risks, like the probability that the Fed will raise rates at its next meeting.
- It's much worse at weighing out the effects of, say, a long-term rethinking of democratic norms and civic society institutions.
- While such developments would undoubtedly have profound implications for the mechanics of U.S. capitalism, the market implications tend to reveal themselves only slowly, over years rather than days.
The bottom line: Opponents of Trump's policies have often hoped that a panicked response from the market might suffice to get him to change his mind on something.
- But in practice, the market seems disinclined to panic.
