Trump’s S&P 500 Scoreboard: Wall Street’s Best Hope for Success

As Trump gears up for a potential second term, the financial markets remain a central concern. However, he is also proposing a set of economic policies that various analysts believe could potentially heighten inflation and decelerate economic expansion.

For investors who have seen the S&P 500 Index soar by over 50% since early 2023, maintaining market momentum through 2025 might hinge on Trump’s reluctance to implement any measures that could disrupt the ongoing rally.

“Trump views stock market success as a significant part of his performance metrics,” explained Eric Sterner, chief investment officer at Apollon Wealth Management. “He often began his presidential speeches by asking, ‘How’s your 401K doing?’ when the market was up. It’s clear he wants to avoid any policies that might jeopardize the current bull market,” Sterner added.

Following Trump’s victory on November 5, the S&P 500 Index experienced its best post-election session ever. In the week following, US equity funds received an unprecedented $56 billion influx, the largest since March, as per strategists at Bank of America Corp., citing EPFR Global data. Additionally, since Election Day, the S&P 500, the tech-heavy Nasdaq 100 Index, and the Dow Jones Industrial Average have all repeatedly set new records, despite a recent market retreat.

Despite Trump’s campaign vows, which included heavy tariffs likely to complicate trade ties with major partners like China, widespread deportations of undocumented low-wage workers, tax reductions favoring corporations and the affluent that could expand the national debt and increase the budget deficit, and a protectionist stance aimed at revitalizing domestic manufacturing—a costlier endeavor than overseas production, the market has reacted positively. These risks were no secret and had been extensively debated among investors. The real driver of market enthusiasm seems to be a belief that Trump won’t allow a declining stock market, even if triggered by his policies.

Strategic Shifts

“If certain policies begin to negatively affect his popularity or the stock market, I believe he will shift his stance,” stated Emily Leveille, a portfolio manager at Thornburg Investment Management, during an interview.

In a client note from Barclays strategists on Thursday, it was suggested, “The president-elect should be taken seriously, but not literally.”

The prospect of tariffs is particularly concerning for investors, given Trump’s history of using them as bargaining chips in negotiations, abruptly threatening and then retracting them, causing market fluctuations. His tactical use of tariffs played out publicly and often through social media during drawn-out trade discussions with China and Mexico.

This time around, Trump has proposed imposing tariffs ranging from 10% to 20% on all imports, which could potentially lead to a 10% decline in US equities and a mid-single-digit drop in S&P 500 profits, UBS strategists estimate. A proposed tariff of 60% or more on Chinese goods could reduce earnings for S&P 500 companies by 3.2% in 2025, according to Barclays strategists.

“Using tariffs as leverage in trade talks is one thing, but actually implementing them is another,” remarked Mark Malek, chief investment officer at Siebert. He noted that Trump’s sensitivity to the stock market’s reactions could theoretically moderate his approach.

Leaders in the financial sector, like Jamie Dimon, CEO of JPMorgan Chase & Co., seem to concur. At the APEC CEO Summit in Peru on Thursday, Dimon expressed his belief that the president-elect would likely avoid actions that could trigger a market downturn.

Nevertheless, investors are preemptively reacting to these risks, shedding shares of companies likely to be impacted by these tariffs. Since Election Day, the Nasdaq Golden Dragon China Index, which includes companies listed in the US but operating in China, has fallen by 8.9%. Similarly, Coca-Cola Co. and PepsiCo Inc. have each declined about 5.5%, and Hasbro Inc. has seen a 7.1% drop.

A New Economic Landscape

Historical comparisons may be less relevant given the starkly different conditions compared to when Trump first assumed office in 2017. Back then, the S&P 500 was coming off a 9.5% gain in 2016 following a slight dip in 2015. Now, the index has surged 53% since the close of 2022, setting more than 50 records in 2024 alone.

Interest rates were also significantly lower in 2017, with the fed funds rate between 0.5% to 0.75%, compared to today’s range of 4.5% to 4.75%. Moreover, Trump may find less support from the Fed this time around, following Powell’s recent remarks that there was no rush to implement further rate cuts after the reductions in September and October.

The elevated equity valuations and tighter financial conditions could limit Trump’s ability to stimulate the economy and the stock market as he did during his first term with a $1.3 trillion spending bill that increased domestic program expenditures and a $1.5 trillion tax cut.

“President Trump will not be able to replicate the fiscal stimulus from his previous term,” wrote Marko Papic, chief geopolitical strategist at BCA Research, in a recent client note. “Trump 2.0 will curb immigration and be forced to curb fiscal policy, the twin pillars of American outperformance relative to the rest of the world.”

The potential repercussions are currently more apparent in the bond market, as traders bet on a Treasuries selloff following Trump’s victory. The extent to which the market can tolerate these developments remains a critical question, according to Ed Yardeni, president and chief investment strategist at Yardeni Research.

“Significant rises in bond yields due to fears of inflation and larger deficits would clearly indicate the stock market is misjudging the situation,” Yardeni noted.

Lastly, a potential risk could arise if Trump proves too sensitive to market fluctuations. Frequent meddling could destabilize the markets, which generally isn’t favorable for stock prices, suggested Siebert’s Malek.

“As we all know, markets can be quite temperamental,” Malek observed. “If Trump reacts too impulsively to daily market movements as he did at times during his first term, he and many others might find themselves caught in a volatile situation.”