The stock market has been in turmoil for the last two weeks thanks to uncertainty about the President’s trade policy… followed by widespread surprise at the extent of Trump’s trade war, as he announced higher tariffs on friend and foe alike.
Since its February 19th peak, the S&P has fallen more than 17% — wiping out trillions of dollars in wealth in just a few weeks and taking the S&P back to nearly 10% below where it stood on the day Trump was elected.
Despite the market’s collapse, the President has said, “I’m not even looking at the market.” He and his advisors believe the pain investors are enduring will be short-lived and more than made up for by a market boom that will follow a reset of global trade agreements.
The President Cares More Than He’s Willing to Admit
However, some financial experts are skeptical that the President doesn’t care about the stock market’s performance.
Take Tom Lee, the co-founder and head of research at Fundstrat, an independent financial research firm. Lee is famous for his near spot-on forecasts of where the S&P would finish in 2023 and 2024.
In a message to his clients, Lee wrote, the “market fury is not due to a reaction to a trade war, but rather, in our view, the fact the White House broke a core covenant of capitalism — stable and predictable regulatory environment.”
According to Lee, Trump wants the market the rally in order to validate how he’s handling global trade. He also needs public support, which according to some polls is beginning to wane.
Furthermore, a market crash could also have the potential to help cause a recession, which is the last thing Trump wants.
Declining Market Could Cost Republicans Control of Congress
Also important is a rising fear that if the President’s policies don’t get fast results, the Republicans could lose control of Congress in next year’s mid-term elections.
That’s exactly what happened to Republicans following the McKinley tariffs of 1890 and the Smoot-Hawley Tariff in 1930.
In the 1890 mid-terms, Republicans experienced a landslide defeat, losing nearly half of their House seats.
In the 1932 elections that followed the enactment of Smoot-Hawley, Republicans lost control of both houses of Congress. And both Senator Reed Smoot and Representative Willis Hawley lost their seats.
The fallout from Smoot-Hawley is especially galling to Republicans as it helped usher in decades of dominance by the Democratic Party.
It seems unlikely President Trump is willing to risk that kind of legacy for himself.
With that in mind, Lee expects the President to moderate or even reverse his trade policies if the market continues to fall.
O’Leary: “Everybody’s Willing to Cut a Deal”
And he’s not alone. Billionaire “Shark Tank” star Kevin O’Leary believes the tariffs are part of a larger negotiation package and that the President will quickly negotiate his way towards removing or reducing them.
As O’Leary told Fox Business, “I believe in economics driving everything at the end of the day, and I don’t think the Trump administration is stupid. They know they’ve gotta start negotiating deals and show the world what the outcome of this is gonna be.”
As a result, O’Leary expects U.S. trading partners to race to the negotiation table. As he put it, “Everybody’s willing to cut a deal.”
Meanwhile, influential voices such as Lloyd Blankfein — former Chairman of Goldman Sachs — is urging the President to delay the tariffs by at least six months to provide adequate time to negotiate new and better trade deals.
He’s been joined in his calls for a tariff pause by billionaire hedge fund manager Bill Ackman — who supported Trump’s 2024 campaign, and has taken a great deal of heat for doing so.
The Commerce Secretary’s Head May Already Be on the Chopping Block
According to FundStrat’s Tom Lee, the President may already be laying the groundwork for pulling back. And he may even have a fall guy if the markets continue to tank.
Lee cites a report from Politico saying that, according to White House sources, Commerce Secretary Howard Lutnick — an especially loud supporter of the tariffs — could be poised to take the blame.
Insiders reportedly blame Lutnick for the unexpected severity of the tariffs, which go beyond anything Wall Street expected.
The bottom line is that even if the President’s trade policies continue to tank the stock market, he will eventually reverse course, either because he is successful at negotiating new trade agreements or simply out of political necessity. And that could be sufficient to send the market soaring to new highs in the months ahead.