President Trump wants to buy $200 billion in mortgage bonds in an effort to reduce housing costs.

Why it matters: His plan is one of a series of steps that Trump has recently announced to address the affordability concerns of voters. It's not clear if it would make a significant impact on housing costs.

Driving the news: In a Truth Social post yesterday afternoon, Trump said the purchases "will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable."

Zoom in: Trump noted that Fannie Mae and Freddie Mac, the two mortgage agencies under government control, now have $200 billion in cash.

• "We are on it," Bill Pulte, the regulator who oversees Fannie and Freddie, posted on X. "Thanks to President Trump, Fannie and Freddie will be executing."
• Fannie and Freddie had been adding to their mortgage and bond portfolios in an effort seen as trying to push down mortgage rates, Bloomberg wrote.

Zoom out: In 2020, when the economy was in the grips of the pandemic, the Federal Reserve bought a huge amount of mortgage-backed securities to help drive long-term interest rates down.

• At its peak, those holdings totaled over $2.7 trillion.
• $200 billion could move rates only at the margin.

What they're saying: "The housing affordability challenge is not a function of finance," Joe Brusuelas, chief economist of RSM, tells Axios. "It's plentiful and a 6.25% mortgage is historically cheap."

• "The problem is a function of supply. Under those conditions, all it would do is drive prices higher," he notes.

By the numbers: Mortgage-related stocks such as LoanDepot and Rocket Companies rallied during after-hours trading yesterday. Mortgage-backed securities also caught a bid relative to treasuries following the news.

The bottom line: This is the second announcement in two days from Trump aiming to address housing affordability, after he posted about banning large institutional investors from buying single-family homes.

• It remains unclear if either proposal will do so. The president is expected to discuss his housing proposals at Davos later this month.

Higher productivity is often seen as a synonym for fewer workers. But market strategists say productivity gains driven by AI could actually lead to more jobs.

Why it matters: That would be a boon for the economy and could give the stock market enough steam to extend its rally.

Driving the news: Labor productivity increased 4.9% in the third quarter, the Bureau of Labor Statistics reported yesterday, the fastest pace in two years, which could be due to the proliferation of AI.

What they're saying: "Productivity growth is an amazing thing," Steve Englander, head of G10 FX research at Standard Chartered, tells Axios.

• "I know we worry about employment, but in the past, strong productivity growth has been accompanied by strong employment performance."
• "History tells us that when firms make money, at some point they say, you know, we need a few more bodies here to make even more money," he says, pointing to data showing this kind of productivity has led to more jobs over the last 150 years.

Follow the money: An AI-driven productivity boost has positive implications for equity investors.

• "We're embedding for the first time in our estimates an actual earnings boost from AI adoption and productivity this year," Ben Snider, equity strategist at Goldman Sachs, tells Axios.
• "It's still very small, less than a percent, but we think that'll grow going forward."

Zoom in: AI cost savings would be good for the dollar and for asset prices more broadly, Englander notes, because of the economic growth associated with businesses expanding.

• Productivity equals greater profits. That will mean more business spending on labor, thus more people with jobs, and more people spending money, and so on and so on.

Reality check: As always, there is the risk that this time is different, and productivity gains are not such a positive.

• That is not the base case for Englander, although he says he is worried, but not pessimistic, about this potential outcome.

The bottom line: Productivity from AI may sound like code for layoffs and negative economic effects.

• But if history is a guide, that short-term pain will lead to long-term gains for the economy and markets.

Defense stocks are catching a bid after President Trump said he is considering a record $1.5 trillion U.S. defense budget. This comes after he floated limits on buybacks and dividends for the sector, which weighed on stocks.

Why it matters: This exemplifies the guessing game that Wall Street plays regarding policies from the White House, which can fundamentally change the base case for investing in a sector.

What they're saying: "The sector without dividends and buybacks will certainly lose some of its traditional investors, but it will also attract a new investor who is focused on growth," Mark Malek, chief investment officer at Seibert Financial, said via email.

• Before Trump made his announcements, Malek flagged a bullish view on defense stocks in a note to clients, since he saw the moves in Venezuela as more optimistic for defense stocks than energy.
• "Focus on security, focus on defense, and let the others gamble on the resources," he wrote.

Zoom out: But defense investors historically like the sector precisely because it offers them payouts through dividends and buybacks that support shares.

• The White House proposals could turn defense, traditionally a value sector, into a growth corner of the market.

Zoom in: The proposed spending surge would more than offset any drag from restrictions on payouts to shareholders, says Morgan Stanley defense analyst Kristine Liwag.

• Among the major defense companies — Lockheed Martin, Northrop Grumman, General Dynamics, L3Harris and RTX — dividend yields averaged 1.9%, totaling about $8 billion over the last year.
• Buybacks ran at 1.8% of market cap, or about $10 billion combined.
• That means even a full clampdown on payouts would pale next to the hundreds of billions of dollars promised by Trump's budget target.

Reality check: This investment thesis works only if you believe this cash windfall is coming for defense companies. It's "not going to happen," Marko Papic of BCA Research said on a call with clients.

• That doesn't mean you shouldn't invest in defense stocks, he added, but Papic sees more opportunity in European defense stocks as nations like Germany have doubled down on investments.

The bottom line: This is a great example of these quick calculations investors must do under Trump on which policies will stick, which will fade, and which will actually show up in company earnings.