On the menu today: The markets, and the economy, don’t care what you think of President Trump. They do seem to care about what Trump says, or what trade adviser Peter Navarro or Treasury Secretary Scott Bessent says. But if the markets don’t like what the president and his men are saying, they will react quickly and intensely. The markets don’t care if you think a policy like the sweeping tariffs announced last week should be given a chance, for a couple weeks or a couple months, to see if it works as intended. Economic news has traveled fast and furiously since last Wednesday, and the administration would be wise to heed these hard-learned lessons.
Hard Lessons, One After Another
For much of the past week, if you objected to the complicated, sweeping plan for tariffs on every U.S. trading partner, you were told, “You’re rushing to judgment.” The problem is that the world’s financial markets make judgments fast, and act fast, particularly when they don’t like something.
It’s not just the stock markets, but we can start with them. The day Trump took office, the Dow Jones Industrial Average closed at 43,487.83, the tech-heavy Nasdaq Composite closed at 19,630.20, and the S&P 500 closed at 5,996.66.
This morning, DJIA starts at 39,593.66, Nasdaq starts at 16,387.31, and S&P starts at 5,268.05 — declines of 9 percent, 17 percent, and 13 percent, respectively. Keep in mind, Trump has been in office for 81 days.
Yes, markets go up and down, and someday they’ll climb back up. But Trump is delivering investors extreme volatility, punctuated by steep declines. If you have a 401(k) or Individual Retirement Account, it is probably worth less now than on the day Trump took office, maybe significantly less.
By the way, a hard lesson for the Twitter/X left and assorted progressive Democrats during the Biden years was that when you mock or deny other people’s economic pain, you lose. Every time someone complained about inflation and the cost of living during the Biden years, some snot-nosed punk on X would argue the problem was that the person was shopping at expensive places. These days, it’s not that hard to find some random person on X scoffing, “I don’t have a 401(k), so I don’t care.” Well, congressional Republicans don’t have the option of not caring, because a whole lot of their constituents do have such accounts. About 62 percent of U.S. adults have money invested in the stock market, including individual stocks, a stock mutual fund, or a retirement savings account.
I’ve seen a few people who think of themselves as conservatives echoing Bernie Sanders’s arguments that the top 10 percent of Americans own 93 percent of all U.S. stocks. Well, when a guy watches his 401(k) shrink by 15 percent in three months, knowing that the millionaire on the other side of town lost even more is cold comfort. Some other guy losing a chunk of his wealth doesn’t mean you get any more wealth. Rooting for financial pain for someone wealthier than you is a bitter loser’s mentality. Every day, the net worth of the world’s richest billionaires goes up and down by vast fortunes, sometimes billions of dollars in one day. Does that make you any richer or poorer? Does the incline or decline in their fortunes change your income, your savings, your net worth? If not, why worry about it?
(You can also find Trump supporters — in some cases, self-described Marxists — arguing, “President Trump screwed over Wall Street to bail out Main Street.” Hey, where do you think Main Street businesses get loans from? Where do you think they keep their money? About 4 million American small businesses run their finances through Bank of America. When a big bank like Bank of America or PNC makes a loan to mom and pop’s restaurant or a downtown boutique, is that Wall Street at work or Main Street at work? They’re interconnected and symbiotic.)
Then there are the bond markets, discussed briefly in yesterday’s newsletter. Treasury bonds are effectively loans to the U.S. government; as Bankrate puts it, “when you buy a Treasury bond, you’re essentially lending money to the federal government. In return, the government agrees to pay you a fixed rate of interest every six months for the life of the bond. When the bond matures — in 20 or 30 years — the government pays back the original amount of the loan, also known as the bond’s face value.” They are traditionally one of the safest ways to invest because the U.S. government (almost) always pays back its debts.
Because bonds are so safe, usually the interest rates on them are pretty low. But when fewer and fewer people want to buy those bonds, the government has to raise the interest rates.
The bond market’s message was straightforward even if the underlying rationale was complicated.
The message was that the tumultuous and inscrutable rollout of the Trump tariffs had instilled far more uncertainty than fixed income investors were willing to tolerate. In turn, some of those investors turned into “bond vigilantes,” demanding higher yields as compensation for the risks they were being asked to take in the normally risk-free highly liquid U.S. Treasury market. . . .
Market insiders attribute the bond market blowup, with higher yields both reflecting fear and leading to dislocations on a number of fronts, to a number of factors: the unwinding of a complicated but popular trade involving interest rate-based products; the fiscal train wreck in Washington that is sapping investor confidence; and the need for hedge funds to raise cash for operating income and to cover margin calls.
In an interview with CNN International, former Treasury Secretary Janet Yellen said Thursday that “highly leveraged hedge funds” had to sell, causing further instability.
Though some White House officials, such as Treasury Secretary Scott Bessent, insisted that the move to delay the additional tariffs was the plan all along, the bond market made the decision easier.
“The fact that the bond market was telling us, ‘Hey, it’s probably time to move,’ certainly would have contributed at least a little bit to that thinking,” Kevin Hassett, director of Trump’s National Economic Council, told CNBC in an interview Thursday. “But it wasn’t the bond market that made a panic move, because there was a very systematic, well-planned move that was just about to happen that just turned out to be the same time.”
You see, unveiling the tariffs and then a week later announcing that they’re suspended for 90 days was all part of the plan.
The bond markets are sending a signal that U.S. economic policies are now so erratic, unpredictable, and unstable that even buying a Treasury bond for a decade feels riskier than it did a few months ago. According to CNBC, some wealthy families are putting their money into cash, gold, and family trusts.
Then there’s China’s latest countermove:
Beijing will raise tariffs on all US goods from 84 percent to 125 percent starting April 12, the Ministry of Finance said on Friday, after the White House clarified that levies on Chinese goods rose to 145 percent this year.
“Given that American goods are no longer marketable in China under the current tariff rates, if the US further raises tariffs on Chinese exports, China will disregard such measures,” according to the statement.
China’s retaliatory tariffs mean that U.S. and Chinese trade is virtually coming to a halt. Now, I said yesterday that I wanted that economic “conscious uncoupling,” but it does create a massive problem for any American whose job relies on exporting goods to China. Just because we have a quite large trade deficit with China doesn’t mean that the U.S. doesn’t have significant exports to China — 143 billion dollars’ worth in 2024. Top products include aircraft parts, integrated circuits, and soybeans.
I am reminded of Trump’s tweet from 2018: “Trade wars are good and easy to win.”
In this week’s edition of, er, The Week:
President Trump wants a “liberation day” do-over. After the stock market tanked and Treasury yields rose in response to his “reciprocal” tariff plan that was supposed to fundamentally alter international trade forever, Trump announced a 90-day pause and said there would instead be a 10 percent tariff on goods from all countries, except 25 percent on Canada and Mexico and 145 percent on China. This is still bad policy. There’s no reason Americans should be paying more to import from Canada and Mexico than from other countries, and the Chinese rate amounts to a sudden near-embargo. National security justifies some restrictions, yes, but the bulk of Chinese imports are everyday goods that don’t threaten the country. The 10 percent minimum is likely not high enough to change production patterns but is still a major tax increase on Americans when Republicans should be focused on extending the 2017 tax cuts and reducing the cost of living. None of the basic facts of economics and trade will be any different 90 days from now. As long as the “liberation day” executive order remains in place and Peter Navarro remains employed by the White House, expect us to have to rehash all of this in early July.
The accusation that tariff critics were “rushing to judgment” blithely ignored that the markets and other countries would render their own verdict quite quickly, with serious and probably lasting consequences for the U.S. economy. Investors and other governments aren’t going to sit around doing nothing for a few months.
Life, and the markets, comes at you fast.
ADDENDA: Thanks to Gene, Andrew, Sherri, and everyone at the Charleston Meeting for a delightful evening last night. The event was off the record, so I can’t say much more.
This is the last Jim-written Morning Jolt for a week, but rest assured, next week you’ll be in the good hands of Dominic Pino, Audrey Fahlberg, and Noah Rothman. I’ll be spending part of next week in Hilton Head, S.C. Then, in a seriously proud moment for the Geraghty household, the Authenticity Woods high school robotics team is competing in the First Robotics Competition world championship in Houston. In a sign that the team is desperate, I, who cannot get the TV remote control to work, am now classified as a “mentor,” which means I can drive the kids to the competition in Houston traffic.