The Trump-Whim Economy Is Here

Donald Trump is a crypto bro who’s going to cut taxes and regulations, loves big banks and corporate mergers, doesn’t care about deficits, loves oil and hates wind and solar, and might actually let RFK Jr. do some kooky health stuff. That, roughly speaking, is the picture of Trump that you get when you look at how markets reacted this week to his reelection as president of the United States. In other words, the markets are saying that he’s pretty much who many of us thought he was.

The immediately obvious conclusion to draw from the fact that the stock market spiked on news of Trump’s win—with all three major indexes hitting record highs—is that traders think he’s going to be very good for business. But traders were not simply buying stocks across the board; they were pouring money into assets they think will benefit from the next Trump presidency, while punishing those they think will be hurt by it.

The sheer number of sectors—and individual stocks—that traders seem to believe will be affected by Trump winning is striking. It reflects Trump’s stated intention and willingness to use executive power in an unfettered way. So what we’re seeing is the traders scrambling to try to read Trump’s mind—because they need to figure out how his whims might shape the fate of multibillion-dollar companies.

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Some version of this market response happens after every election: Government policy has a big impact on business outcomes, and traders’ job is to anticipate that impact on their holdings. It’s also worth remembering that the stock market rose sharply in 2020 after Joe Biden’s victory looked assured, so some of this week’s rise is probably the result of traders’ relief that we’re not headed for months of legal challenges and conflict over who won. But going by what he has said over the course of the campaign, Trump has very ambitious plans.

Most starkly, he has promised to impose across-the-board tariffs on almost all imported goods, and 60 percent tariffs on Chinese imported goods in particular, and to deport millions of undocumented immigrants. Much of this Trump can direct on his own account, without seeking congressional approval.

The stock market is therefore working overtime to parse his various campaign promises: which it should take seriously and which it can ignore. For instance, one promise that traders seem to be comfortable ignoring is Trump’s vow to let Elon Musk slash trillions of dollars in federal spending. (Musk has claimed, improbably, that he can cut “at least $2 trillion,” mainly by getting rid of government waste.) If traders actually believed that was going to happen, the market would have sold off steeply, because government budget cuts of such magnitude would send the economy into a deep recession.

Instead, the market believes Trump is going to do the opposite: Far from embracing austerity, Trump is likely to cut taxes and increase spending, pouring more money into the economy. That would increase the risk of inflation—ironically, given the fact that Trump won in large part because voters were angry with Biden and Kamala Harris over high prices—which is why, on the first day of trading after Trump’s election, interest rates on 30-year Treasury bonds rose by their biggest margin in more than two years. This is because, when the risk of inflation rises, bond investors demand higher interest rates to protect their position.

The real market action, though, was among individual assets, and the most obvious winners were companies in sectors that Trump plans to deregulate. Share prices in oil drillers and allied service companies, for instance, soared on the expectation that Trump will be a “Drill, baby, drill” president. The value of cryptocurrency assets and stocks likewise shot up, because Trump is expected to replace the current Securities Exchange Commission chair, Gary Gensler, with someone far more tolerant of crypto than Gensler has been, and because Trump’s general attitude toward financial regulation is, at best, lax. Given that Trump shilled for a memecoin himself during the election campaign, concluding that the crypto industry’s legal worries are mostly behind it seems like a good wager.

Oddly, though, Trump-themed memecoins themselves did quite badly, with the most popular Trump memecoin, which is literally called MAGA, falling by more than 50 percent this week, after initially spiking following Trump’s win. And his social-media company, the Trump Media & Technology Group, is also on pace to finish the week down, despite much anticipation that a Trump win would be good for the stock. Both of these sell-offs appear a classic example of traders buying the rumor and selling the news.

Financial stocks rose strongly, with companies such as Goldman Sachs and Morgan Stanley registering double-digit gains on Wednesday, presumably on the expectation that they, too, will be operating in a friendlier regulatory environment. Another intriguing sign was that shares of Discover, which is in the process of being acquired by Capital One, saw a 17 percent increase. That merger has yet to be approved by federal regulators, and it’s come under considerable scrutiny—including from Democratic members of Congress—for its arguably anticompetitive effects. The big spike in Discover’s stock price suggests that traders believe, almost certainly correctly, that for all of Vice President–elect J. D. Vance’s criticism of corporate consolidation, a Trump administration will be much friendlier to mergers and acquisitions than the Biden administration has been.

The stocks whose booms were the most ominous sign of what a Trump presidency has in store were those of Geo Group and CoreCivic, private-prison companies that already do a lot of business running migrant-detention facilities. Geo Group also administers a GPS-monitoring programs for asylum seekers who have been paroled into the country while waiting for their cases to be heard. If Trump expands facilities to detain people who cross the border and implements his plan for mass deportations, the demand for these companies’ services will rise sharply. Geo Group’s stock was up 42 percent on Wednesday, and CoreCivic’s rose 29 percent.

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There were losers too. Electric-vehicle manufacturers, with the exception of Musk’s Tesla, saw their stocks fall, presumably because Trump is likely to eliminate subsidies for electric vehicles. The same was true for renewable-energy companies such as First Solar that will now be operating in an environment where the federal government has little interest in, if not outright hostility toward, their business. Tesla’s stock bucked this trend, rising 13 percent on a day when most competitors saw their stocks fall. Traders know that a company is set for success when its CEO played a major role in the president’s election.

Stocks in home-improvement retailers such as Home Depot and Lowe’s also slipped on Wednesday, though they recovered most of their losses by the end of the week. Some of that movement may have involved concern about the effect of Trump’s tariffs, which will force retailers to raise prices or else see their profit margins shrink. But the bigger reason was that higher interest rates provoked by Trump tax cuts would crimp new-home buying and renovation—and more expensive mortgages are bad for the Home Depots of the world even with more money in the economy. Real-estate firms similarly saw their shares fall.

The most intriguing category of losers were companies in sectors that could be a target of government action if Trump follows through on his promise to make Robert F. Kennedy Jr. some kind of health czar. (As yet, what specific job that might be is unclear, but RFK Jr. himself has been claiming some such role in interviews.) Pharmaceutical companies that make vaccines, particularly COVID-19 vaccines, saw their stocks fall. Trump has said he wants to defund any school that still has vaccine mandates (whether he means a COVID-19-vaccine mandate or one applying to any other type of vaccination is not known). But clearly, any exercise of power by RFK Jr. over their industry would be very bad news for vaccine makers.

Less glaring but likely related, the stocks of consumer-staples companies such as Pepsi and Mondelez fell. They didn’t take a terrible tumble: The sector as a whole was down only 1.6 percent. But if RFK Jr. does have an administration post, then processed food is a probable target of his “Make America Healthy Again” project—he already released a video going after a colored dye found in many kids’ foods. So it makes a certain sense that investors in those companies would be skittish about how his elevation might affect their business. This points to a certain tension in the relationship between Trump and RFK Jr.: The president-elect’s broad approach is all about deregulation, whereas Kennedy’s instinct is all about tightening regulation. Traders appeared to be betting that Trump’s tolerance for MAHA intervention will be limited.

All told, the markets remain fluid and dynamic, already showing signs that some investors have begun to reconsider their bets and unwind certain trades. (Interest rates, for instance, had come back down by Friday, in part because the Federal Reserve cut rates on Thursday.) Traders are, after all, trying to judge not only what a volatile, often distracted president is going to decide to do, but also how much his administration will actually be able to implement. The old line about Frank Sinatra comes to mind: It’s Trump’s world; traders just live in it.