Whenever Donald Trump does something that amounts to putting the institutional foundations of American prosperity through the wood chipper \u2014 whether that\u2019s attacking Fed independence, turning his back on mRNA technology, attacking the integrity of federal economic statistics, or any of a dozen other things that happened this summer \u2014 I check the financial market reaction, since in principle wrecking the country is bad for business. <\/p>\n
But the S&P 500 keeps hitting new record highs and is up about 10 percent so far this year. <\/p>\n
That\u2019s nothing extraordinary (it rose 23 percent in 2024 and 24 percent in 2023), but it\u2019s also not a panicked response. It sometimes feels to me like we\u2019re living in the waning days of a dying empire<\/a>, but you certainly don\u2019t see it in the markets. Technical economic posts are rarely good for Slow Boring\u2019s business, so I was happy to see that Paul Krugman recently wrote a great explanation<\/a> of the \u201cKeynesian Beauty Contest\u201d dynamic<\/a> and the fact that stock market crashes always arrive too late. The standard analogy here is to Wile E. Coyote in Looney Tunes: Markets don\u2019t notice that we\u2019ve run off the cliff until it actually happens. <\/p>\n I do think that there are also some more prosaic factors at work here, though. <\/p>\n Whatever you think about Donald Trump, American software companies have been the most successful businesses in the world for a long time. And Nvidia has emerged as the most important chip company in the world, despite the broader struggles of the United States as a location for chip manufacturing. If Meta were a Japanese company rather than an American one, signs of the American political system becoming completely dysfunctional might be a reason to bet on it, rather than on Alphabet or Amazon. But the leading tech companies are almost all American companies, and nothing Trump has done has me thinking that SAP is poised to dominate the future of global software. <\/p>\n In other words, there is currently a lot of investor optimism about artificial intelligence in general, and about big American tech companies with AI-related investments in particular. That optimism might prove misplaced (many people on the internet are sure it\u2019s a bubble<\/a>), and a change in investor sentiment about AI would crash the market. <\/p>\n But Donald Trump is clearly aligned with corporate America\u2019s AI aspirations, so you wouldn\u2019t really expect anything crazy that he does to cause panic about American AI companies\u2019 prospects. Whatever else he\u2019s up to, Trump is clearly a guy who wants to see the line go up. <\/p>\n When Trump announced his bizarre plan for the government to own 10 percent of Intel, many people observed that if a Democrat did this, we\u2019d hear howls of \u201cSocialism<\/a>!\u201d from the business community.<\/p>\n That\u2019s definitely true. It\u2019s worth saying, though, that there\u2019s more to the asymmetrical reaction than partisanship or hypocrisy. The reason businesspeople scream \u201csocialism\u201d when left-of-center political parties do things that are socialistic is that they believe left-of-center parties are full of socialists who don\u2019t like businesspeople, and they fear any sign that those people are calling the shots. Democrats themselves say that the Republican Party is in hock to big business and the class interests of the wealthy, so of course it\u2019s hard to make businesspeople panic that a GOP administration is poised to liquidate the kulaks. <\/p>\n Conversely, the reason you hear cries of \u201cfascism\u201d at the specter of national guard deployments in D.C. is that a lot of people believe the MAGA movement is full of fascists! If Joe Biden had surged additional federal resources into the city, most residents wouldn\u2019t have found it threatening, and the whole national debate would be about how the libs are wasting money on big cities again. <\/p>\n The two parties and their respective coalitions and ideologies aren\u2019t arbitrary or interchangeable. People read specific events through the lens of their general assessment of the parties. <\/p>\n Another example: The Obama administration used \u201cDear Colleague\u201d letters from the Education Department<\/a> to try to induce colleges and universities to make various policy changes. These generated political controversy but did not generate widespread resistance and litigation from university administrators or widespread outcry from college faculty. That\u2019s because these institutions are full of progressives who are disposed to view a Democratic administration\u2019s actions generously and also inclined to agree with their objectives on the merits. When Trump tries to twist the arms of universities, it\u2019s seen as an attack on freedom full of dark portents. That\u2019s in part a baseline lack of sympathy for Trump among the relevant stakeholders, but also a sincere assessment that Trump and his team don\u2019t value higher education or scholarly research. <\/p>\n Republicans, the party of business, benefit from similar dynamics vis-a-vis the business community. <\/p>\n That\u2019s relevant to market sentiment, and it matters in concrete ways. Part of the larger Trump dynamic is that so much attention is paid to extraordinary happenings that it\u2019s easy to lose sight of \u201cboring,\u201d \u201cnormal\u201d policy stories. <\/p>\n But Trump has a former chemical industry lobbyist working at the Environmental Protection Agency, doing industry-friendly stuff like blocking regulation of \u201cforever chemicals\u201d in drinking water<\/a>. This is happening at every federal agency \u2014 regulations are being shifted to reflect less concern about things like pollution or safety. Some of Trump\u2019s regulatory changes are probably good on the merits. But even the changes that are not good on the merits tend to involve a regulator making some calculation like \u201cRelieving $X of costs on business will inflict $3X worth of harm in terms of lives saved.\u201d We are talking about a trade-off between a financial cost to American business versus the statistical value of a human life. <\/p>\n The stock market, I\u2019m sad to say, does not really care if someone lives to 87 rather than dies at 69 thanks to reduced air pollution. It does care about businesses being more profitable. <\/p>\n The fact that Republicans err on the side of making the business-friendly call on these questions when the business-friendly call is correct and also when it\u2019s wrong is precisely why they are the party of business. This tendency tends to make the line go up, and also means that financial markets are inclined to read ambiguous signals from a Republican administration in an optimistic way. <\/p>\n A related issue, of course, is that while I think Trump\u2019s policies are a menacing threat to the American constitutional order, clearly a lot of people disagree and think he\u2019s good. <\/p>\n He\u2019s got a 44 percent approval rating in the Silver Bulletin dashboard<\/a>, which is low but not that low. Even in 2020, he got 47 percent of the vote. The marginal voter in the 2024 election was narrowly mad about inflation and border security and not necessarily bought in on the larger MAGA project. But the people who voted for him the time that he lost and the people who still like him even now that it\u2019s clear he\u2019s not actually going to bring the cost of living down are people who do have some affection for that project. Anti-Trumpers often seem to be unaware of what this project even is, but the basic idea is that institutions dominated by the educated professional class in America have become so fatally compromised by \u201cwoke\u201d left-wing ideology that only a cleansing fire can save our civilization. <\/p>\n This is clearly not what most people believe or Trump would have won in 2020, Republicans would be leading in the midterms, and his approval rating would be above 50 percent. <\/p>\n But it\u2019s a large minority viewpoint that says all this institutional destruction is good for the long-term growth potential of the economy. When Elon Musk talks about the \u201cwoke mind virus,\u201d this is what he\u2019s saying: that the integrity of Bureau of Labor Statistics data is a small matter beside the stakes of rebuilding educational and cultural institutions from the ground up in order to celebrate individualism and meritocracy. <\/p>\n In terms of the stock market, an important counterpoint is that plenty of Democrats have positioned themselves as rhetorically opposed to the existence of big, successful companies. When progressives talk about the need to \u201cbreak up big tech,\u201d how America is an \u201coligarchy,\u201d and how \u201cbillionaires should not exist<\/a>,\u201d they are heard in the business world as saying that the United States should be more like Europe, where the largest companies have market caps that are less than one-tenth of the largest American companies. <\/p>\n I feel like purely partisan Democrats, like my Politix<\/a> co-host Brian Beutler<\/a> or even Krugman, don\u2019t think seriously enough about the meaning of this. Whatever you make of comparisons between the United States and Europe, it\u2019s indisputable that the value of shares of stock in our companies is a lot higher \u2014\u00a0more or less by definition that\u2019s what happens when Europe does not have big successful companies like we do. <\/p>\n So if progressives say \u2026<\/p>\n If we win power, we are going to make corporate America look more like corporate Europe. <\/p>\n<\/li>\n Trump is trying to establish a dictatorship that will make it impossible for us to win power. <\/p>\n<\/li>\n<\/ol>\n \u2026 it follows that Trump doing authoritarian-style consolidation would be bullish for stocks. <\/p>\n To be clear, I am not saying these things are true, in part because I think progressives are more full of shit about (1) than their rhetoric lets on. But I do think the broader anti-MAGA community should think harder about what we are putting out here, because some people take politicians\u2019 rhetoric quite seriously and I don\u2019t think it\u2019s a good idea to polarize people into being pro-Trump. <\/p>\n Tactics aside, though, my larger point is that the Trump movement includes a lot of true believers. And they not only vote, they invest, and so much of what you and I see as disturbing they see as good. <\/p>\n Finally, there is an equilibrium issue with Trump and the stock market. <\/p>\n When he first won, markets soared, even though on its face, his promise of trade wars should have been disruptive. But the logic you heard for Trump\u2019s trade plan was pretty simple: Trump cares a lot about financial markets, so even though he\u2019ll probably do dumb stuff that generates sell-offs, he\u2019ll back down from anything that has that consequence. You don\u2019t want to be the sucker who sells in the face of Trump doing something dumb; you want to be the savvy guy who buys the dip. The basic logic of \u201cbuy stocks because if the market goes down Trump will make sure it goes back up\u201d fueled a tremendous stock rally. Eventually, Liberation Day broke through that wall of confidence and the market crashed. But then Trump did back down! And the market started going back up. <\/p>\n Of course, since backing down, he\u2019s substantially backed down from the back-down in a way that is costing consumers dearly. <\/p>\n But there\u2019s an important difference, namely that as he\u2019s rejiggered the tariff situation, Trump has consistently prioritized avoiding foreign retaliatory measures that would hurt major American companies. Getting Europe or Japan to agree to a \u201cdeal\u201d where America taxes foreign-made products and the other countries don\u2019t retaliate is not actually in the interest of the typical American, who is still suffering from regressive and inefficient tax policy. But from the standpoint of the stock market, what really matters is that Alphabet and Amazon and Netflix and other big drivers of the indexes aren\u2019t feeling retaliatory pain. These companies mostly don\u2019t rely that much on imported intermediary products, and Apple (which could be devastated by import taxes) got itself a convenient exemption<\/a>. Similarly, despite Trump\u2019s putative hawkishness on China, he\u2019s decided to go soft on export controls that could hurt Nvidia\u2019s sales. <\/p>\n This tendency to prioritize the interests of America\u2019s biggest companies not only mechanically pushes stock prices up, it reassures investors that Trump is watching the market, and if bad things happen, he will likely shift course. <\/p>\n In terms of the long-term future of the country, of course, this tendency to prioritize the narrow interests of companies that are already big and important makes things even worse. <\/p>\n But in terms of where we started, the confidence that Trump is sensitive to market reaction only makes the Wile E. Coyote phenomenon more severe. If a Democrat did something bad for markets, people would sell. But if Trump does something bad for markets, many will hesitate to sell because they believe that others will sell, and that will prompt Trump to change course \u2014\u00a0that\u2019s the TACO Trade<\/a>. But that means the market may not crash, and he may actually not need to change course! <\/p>\n Eventually, of course, the actual financial results matter. But the confidence that Trump will do his best to keep the line going up means we can probably run pretty far off the cliff. <\/p>\n\n