After a rollercoaster week, American shares – especially for high-tech firms – have ended sharply lower. European stock markets look like holding their own, or better. It seems Wall Street is falling out of love with Donald Trump.
If democracy is faith in the collective wisdom of millions of individual fools, then the financial markets are the collective wisdom of millions of selfish investors; and the markets’ collective wisdom is that Trump is an idiot.
While Wall Street is certainly not a hotbed of Democrat-loving, woke tree-huggers, it was looking forward to better than this from the new president.
Wall Street is fine with less DEI, loves less regulation, adores tax cuts for business and billionaires, wants the oil industry to “drill baby drill”, and can’t wait for a smaller state. It’s all good for profits.
The trouble is, what comes attached to that dream wish list? In Trump’s case, it comes with an imminent international trade war that should remind everyone of the 1930s.
Wall Street may not be made up of Keynesian socialists, but it has some pretty good economists working there and lots of highly paid managers. All of them can count. They know that tariffs are not a tax on foreigners, that they are inflationary, will massively increase costs for American industry, hurt profits, damage exports and imports and threaten a recession both at home and around the world.
But they seemed willing to put up with that, firstly because they hoped all this was just sabre-rattling and Trump would never be stupid enough to do half of what he was threatening and secondly because so long as they could see it coming, they could take it into account and deal with it.
What they have got instead is neither of the above.
They have a hyperactive man-child who is deciding on matters of huge economic importance late at night, through social media and apparently on a whim.
If you think Canada and Mexico (and us for that matter) aren’t sure what is happening, you are right – but compared to the markets they are well-informed.
How do you value shares in American car companies if you don’t know whether their plants in Canada and Mexico face tariffs this day, week, month or even year? How will import taxes on computer chips hit profits in Silicon Valley, and what happens if those tariffs end tonight? How much of the higher cost of imported steel can construction companies pass on to their customers or will those tariffs disappear by the morning?
How do you calculate American growth prospects, inflation or interest rates if you don’t know whether the world is heading for a global trade war or if President Trump will retreat once again, over a late-night Big Mac and then change his mind again in the morning?
Obviously, you can’t, because the answers change every time Trump changes his mind.
Markets crave stability and predictability, even though the world is neither stable nor predictable. But at least they normally know that everything won’t change from one second to the next because of the thumb spasms of an economically illiterate bully.
Now the world is unstable and unpredictable and the markets don’t like it, which is a pity because even though many investors voted for Trump, they now know they have four more years of this madness to come.
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