The initial market optimism that followed Donald Trump’s election victory has faded, as investors grow increasingly concerned over the impact of his administration’s protectionist policies. The euphoria that once drove Wall Street gains has given way to fears of a looming recession, sending stock prices tumbling.
On Monday, the S&P 500 suffered a sharp decline, wiping out all gains made since Trump secured his second term in office last November. The downturn continued into Tuesday, marking a stark contrast to the 6.5% surge seen in the first month of his new administration.
From Market Optimism to Economic Uncertainty
“The Trump trade really started post-election on the heels of what appeared to be a pro-growth, pro-business administration taking over,” said Art Hogan of B. Riley Wealth Management. The term “Trump trade” refers to market optimism that certain sectors would benefit from deregulation and tax cuts under his leadership.
However, Hogan noted that while the anticipated pro-business policies have yet to materialize, the negative consequences of Trump’s protectionist stance are already being felt.
Sam Burns of Mill Street Research highlighted that post-election market gains were fueled by speculative excitement rather than solid economic fundamentals. He cited the case of Tesla, which initially seemed poised to benefit from Trump’s presidency due to Elon Musk’s close ties to the administration. However, Musk’s aggressive cost-cutting measures and controversial public statements may have alienated potential customers, leading to a sharp drop in sales, particularly in China and Europe.
Tesla’s share price has plunged by 50% since its peak in mid-December, wiping out approximately $750 billion in market value.
Cryptocurrency Markets Remain Unmoved
During his campaign, Trump unexpectedly positioned himself as a staunch supporter of cryptocurrency, a significant shift from his previous opposition to the industry. Last Friday, he reiterated his ambition for the US to lead in digital assets.
However, cryptocurrency markets have yet to respond favorably. Bitcoin was trading at around $80,000 on Tuesday, a level unchanged since November and more than 25% below its peak just before Trump’s inauguration on January 20.
While US regulators have dropped legal actions against major crypto platforms like Coinbase and Kraken, the broader market remains unimpressed. Investors had anticipated a more aggressive government intervention, such as state-backed purchases of digital assets. Instead, the administration has only announced the creation of a cryptocurrency “strategic reserve” using digital assets seized by law enforcement.
Banking Sector Faces Recession Fears
US banks, which had largely retained post-election gains in anticipation of deregulation, have also felt the weight of growing economic uncertainty. Patrick Donlon of Fiduciary Trust pointed out that expectations of relaxed financial regulations had buoyed banking stocks until late February.
However, fears of an impending recession have drastically altered market dynamics. In just a matter of days, major financial institutions—including JPMorgan Chase, Citigroup, Bank of America, and Goldman Sachs—have seen their post-election gains evaporate.
“The market is starting to take a more discerning approach in identifying the real winners under the new administration,” Donlon noted.
As investors brace for further economic turbulence, Trump’s once-promising start in the financial markets has turned into a test of resilience amid growing uncertainty.
