Worst Initial Performance of Stock Market During a Presidential Term in Recent History Observed
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Donald Trump's dire warnings in 2024 about a potential market meltdown if Kamala Harris became President seem eerily accurate, given the stock market's current state. At a rally in Pennsylvania, Trump declared that a defeat for him would lead to an economic disaster, comparing it to the 1929-style Depression.
Trump's prediction proved partially true, as the stock market has experienced significant turbulence post-election. His tariffs, intended to protect domestic businesses, pushed a bullish stock market towards a bear mode at an alarming pace, potentially faster than any previous president.
The S&P 500, mind you, hasn't witnessed such an abrupt transformation into a bear market so early in an administration's term since 1957. The market has already shed 15% of its value since the inauguration day, with more losses expected on Monday. The only similar drop for an elected president so quickly into his term was under George W. Bush in 2001, with Carter's early 1977 decline coming in a close second, falling under 6%.
The market's downward spiral gained momentum following Trump's "Liberation Day" event, where he vowed to drastically increase tariffs. In fact, two-thirds of the S&P 500's fall can be attributed to this single event. "Liberation Day has been followed by Annihilation Days in the stock market," Ed Yardeni, Yardeni Research's expert, wrote in a note to clients.
Wall Street's recent turn for the worst isn't the only unusual aspect of the current market. The circumstances preceding this plunge are particularly striking. Bush took office during an already struggling market in 2001, while Trump inherited a booming bull market. It's more than feasible to pin-point Trump as the reason behind the market's downward trajectory, given the significant decline that occurred post-"Liberation Day".
To clarify, the S&P 500 hasn't officially entered a bear market yet. A bear market typically requires a drop of 20% from a recent peak. However, the Nasdaq has already slipped into bear territory on Friday for the first time since 2022, and the Russell 2000 is also in a bear market.
While some experts argue that the stock market doesn't necessarily reflect the broader economy, it's certainly hard to ignore the consequences of Trump's policies on Main Street. Current polls indicate that more than three-in-five Americans are involved in the market in some capacity. "Wall Street is Main Street," Yardeni said. "The two streets prosper and suffer together...Main Street owns lots of stocks in American corporations that are facing massive disruptions as a result of Trump Tariffs 2.0."
Moreover, David Kotok, co-founder of Cumberland Advisors, warned that the Trump tariffs could act as a massive supply shock similar to the 1973-1974 oil price shock during the Yom Kippur War. "The Trump tariffs are a massive tax hike imposed as a sales tax on American consumers," Kotok said. "Supply shocks mean higher inflation coupled with slow growth or recession, which is the worst of all worlds for the central bank."
Recent reports suggest that the market's dire state could possibly trigger a recession. JPMorgan has raised the likelihood of a recession to 60%, compared to its previous estimate of 40%, while Goldman Sachs has raised it from 20% to 45%. HSBC also weighs in at 40%.
In essence, Trump's aggressive tariff policy, particularly Tariffs 2.0, have had a detrimental impact on the stock market and potential implications for the broader economy. Causes for concern include heightened inflation, a slowing economy, and increased risks of a recession. Hence, diversification and long-term investment strategies are championed to mitigate potential risks.
- The stock market's current state, with its swift transformation into a bear market and the Nasdaq and Russell 2000 already in bear territory, probably resembles the conditions preceding a recession, reminiscent of 1953.
- Contrary to common belief, the stock market's performance may not always indicate the health of the overall economy, but Trump's aggressive tariff policy, particularly Tariffs 2.0, probably pose significant risks that could lead to a bear market, possibly escalating to a recession.
- In 2024, if Donald Trump's predictions come to pass and Kamala Harris becomes President, the business world might experience another 1929-style Depression, given his warnings about the consequences of a market meltdown.
