For an extensive period, I have consistently highlighted in this column that presidents usually possess a very minimal degree of influence over the stock market. In the long run, while presidential policies can impact stock market returns to some extent, the entire situation is so incredibly intricate that attributing credit for positive stock market performance to a president is generally a futile endeavor. The complex interplay of various factors complicates this simplistic approach.
Perhaps I should have articulated my point more clearly. While it is indeed challenging for a president to simply wish or will the stock market to rise, a president can certainly single-handedly decide to plunge the market into a downward spiral. Recent events have illustrated this stark reality, particularly in the last week.
The Nasdaq index experienced a significant decline, entering correction territory last Thursday, with the downward trend continuing unabated since then. Major technology companies have faced particularly severe losses during this tumultuous period. This isn’t surprising; with CEO Elon Musk navigating federal processes in a chaotic manner, investors in Tesla (myself included) have suffered the most drastic consequences. Just on Monday, shares of the electric vehicle manufacturer plummeted by 15%. That stings.
It’s important to recognize that the stock market frequently fluctuates for a multitude of reasons, and sometimes, these changes occur without any discernible cause. So, what specifically links this market turmoil to Donald Trump?
For starters, Trump’s own statements play a significant role. During an interview broadcast on the state media outlet Fox News this past Sunday, when questioned about the likelihood of a recession in 2025, Trump remarked, “There is a period of transition because what we’re doing is very big.”
Most economists would concur that the “very big” initiatives being pursued by Trump’s administration could indeed precipitate a recession. This potential is now being mirrored in the stock market movements.
The stock market thrives on stability and predictability. Imposing substantial tariffs on our two closest export markets, Mexico and Canada, only to withdraw them two days later without a clear rationale, exemplifies a lack of stability and certainty. Tariffs disrupt trade and have detrimental effects on the economy overall, particularly in light of retaliatory tariffs from China that took effect on Monday, as a response to Trump’s decision to double his blanket Chinese tariffs to 20%. As you may have noticed, a significant portion of our goods come from China.
Tariffs increase costs for U.S. consumers and complicate the marketing efforts of U.S. producers. Trump asserts he has valid reasons for these tariffs, but aside from a vague sense of grievance, he has yet to convincingly articulate or substantiate how we have been unfairly treated by our primary international customers. His demands have appeared nonsensical, contributing to market anxiety regarding his unpredictable approach to imposing tariffs on trading partners, which could lead to catastrophic market consequences.
Trump’s ongoing trade war is a primary factor behind the recent market downturn. However, it is not the sole policy negatively impacting the stock market. Abruptly shifting stances regarding our ally Ukraine signals international instability, which is detrimental to stocks. Additionally, stringent immigration policies hinder economic growth and ultimately harm stocks. The dismissal of tens of thousands of federal employees, including financial regulators, undermines legal compliance and stability, further jeopardizing the stock market.
For several months, there was a prevailing belief among traders that Trump’s focus would be on deregulation and reducing taxes—two elements known to positively influence stocks. However, it is becoming increasingly apparent that he is more inclined to dismiss the very individuals responsible for regulation and tax collection, a move that will likely lead to arbitrary enforcement or, worse, politically motivated actions.
It’s disheartening to note that, for the time being, the Dow and the S&P 500 have fared slightly better than the Nasdaq. However, prepare for further volatility if Trump and the Republican-controlled Congress fail to ensure government operations remain stable by the week’s end.
Isn’t this situation exhilarating? It resembles a roller coaster ride; however, if your elderly relative in a nursing home decides that foreign nations are pilfering from him, the consequences could be a catastrophic loss of your retirement savings and your children’s college funds. Be sure to extend your gratitude to your favorite president!
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, contributed to various publications, and has made it both his professional focus and personal passion to be financially and scientifically literate. Any opinions he expresses are likely to be valuable insights, but they are solely his own and should not be attributed to any organization with which he is associated. He prefers to keep the credit for himself. He can be reached at jon_wolf@hotmail.com.
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