The Dividend Cafe - Is the Trump Market Put Dead?

Episode Date: March 14, 2025

Today's Post - https://bahnsen.co/41JhZzx Evaluating the Trump Market Put: Implications and Investor Insights Recording from Palm Beach, David Bahnsen discusses the current market volatility, particularly focusing on the perception of President Trump's influence over financial markets. The episode examines whether the 'Trump market put'—the belief that Trump backstops markets due to his vested interest in their performance—is still relevant. Key topics include tariff policies, market assumptions about Trump's economic strategies, and the potential impacts on investors. The host stresses the importance of evaluating investment strategies amidst uncertainty and market dynamics, while maintaining focus on deregulation, corporate tax rates, and economic growth. 00:00 Welcome to Dividend Cafe 00:23 Market Assumptions Under Trump 02:15 Investor Objectivity and Market Beliefs 03:22 Trump's First Term Market Impact 06:45 Current Market Volatility and Tariff Policies 18:51 Small Business Uncertainty 26:46 Investor Strategies Amidst Uncertainty 28:46 Conclusion and Future Outlook Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to The Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello, and welcome to The Dividend Cafe, where I am recording actually from my hotel in Palm Beach. Jolene and I have been here at our Palm Beach office, last several days, and are really in the midst of a wild market week as it was last week, as it was the week before. So nothing particularly new, but more of the same and definitely necessitating some discussion this week in the Dividend Cafe with a particular focus on not just what's happening in markets,

not just more talks about tariffs, that's all part of it though, but specifically asking the question, is the Trump market put over? Meaning this sort of belief that there was a backstop in markets because President Trump was fundamentally concerned with financial markets, cared how financial markets were behaving, and therefore was unlikely to do anything that would undermine financial markets if it was going to undermine his own legacy, reputation, good favor in the way it reflects upon him. I think this has been an assumption that's been somewhat embedded in markets since the

beginning of his first administration. It's a fair question for investors and financial actors to revisit now. I have a few thoughts on it that I think will be useful and hopefully help frame the larger question in the right way to get to a good actionable place as to how to be thinking about this current tumult that we're living through. I don't think it's new to think of President Trump as unpredictable and unconventional, the fact that he's controversial and orthodox. The problem with those terms is there are some that are huge supporters

of the president that take it as an insult. I do not mean them as an insult. There are some that are huge critics of the president that believe those terms are far too benign and don't capture what they see as some of the underlying problem or concern that they have. And yet here I am not really talking about either of those things. I'm not assessing what President Trump is or isn't as a person or even as a president. I'm assessing what markets believe and what he wants markets to believe about him.

In other words, this is very intentionally a much more pragmatic conversation for investors that I don't believe is helped by bringing our own priors or our own strongly held views about the president, whether good ones or bad ones, to the conversation. Some objectivity is helpful, and that doesn't mean that anyone can do it without opinions. I can't do it without opinions. I'm not going to try, but I am going to clarify what it is I'm seeking to do, which is not provide a comprehensive assessment of all the things I like and don't like about the president.

I'm not going to say I like tariff policy because I don't, and because in critiquing what is specifically problematic about tariffs, it enables me to have a more fully formed and comprehensive assessment about the policy as it pertains to investors, markets, economic activity, corporate profits, things that do matter. Overall, though, I don't believe you have to like or dislike President Trump to grant that the market assumption has always been that underneath the various elements of President Trump, good or bad, that are out there, he has had a fundamental belief in markets, a fundamental appreciation for deregulation, that his instinct has been to eliminate impediments to economic growth and that he engages himself utilizing economic data like GDP growth, the stock market, et cetera, in

how he wants to be thought of and remembered. That's I think a fair assumption. And I want to evaluate if that assumption is being abandoned by markets and if that assumption should be abandoned by markets. That's what's in front of us here today. And that requires, but is politically adjacent, but it is not a straightforward political commentary. I've given these types of caveats before.

Sometimes I do it because I hope it'll cause people to not go forward sending some of the emails that they send, and sometimes that doesn't work. And I don't really mind getting a whole lot of emails from people, but I do think when I'm going to get an email saying, you're an idiot, you hate the president for no reason. And other, like the same time, a note goes to my inbox saying, you're an idiot, you don't realize why we should hate the president. I don't realize why we should hate the president. I can't believe you don't hate the president. And I get both those emails at the same time.

I don't share that to say, therefore, I must be doing exactly right. I share it to say that the feedback that I'm getting, if you feel that I'm doing one of those two things, you have to understand other people disagree with you because I promise you, I get a mail from both sides. I am real critical of the president right now, and I don't worry if fans of the president upset me about that. I am called to be a truth teller, but I'm also in this capacity an investment manager trying to call balls and strikes and make decisions on behalf of clients and their capital to facilitate successful achieving of their goals. And I definitely believe this subject in front of us today is relevant and causes us to question certain things.

And along the way, I have no doubt that there's some that would wish I would be more critical and some that wish I'd be less critical, but you can see why I'm approaching it the way I am. I don't think it's controversial to say that the president viewed the stock market as a report card on his presidency. I don't think it's an opinion or conjecture. There is a lot of public support of him saying things like that, him publicly appealing to stock market performance to validate and affirm elements, measurable elements of his track record.

Privately, there is also a significant amount of support and things that have been shared with me and firsthand information. So between the public record and the private testimony, I don't think this is a controversial statement, but again, the this is a controversial statement. But again, the question is not reading his mind or asking, does he still care about markets, or is there a deeper strategy? We want to evaluate where things stand in case something that has been the case before is different now. And maybe one of the biggest points I want to make as we deal with the reality of significant market volatility

in the last couple of weeks that seems to have a high degree of rapidity to it is the difference between now and the first term as it pertains to a sequence of strategy that not only did the general consensus feel that President Trump entered his first term as a kind of pro-market guy, not a philosophical supply sider, but an instinctive supply sider that just impulsively viewed tax cuts deregulation as better than higher taxes and higher regulation. And markets thought that much, even if they didn't necessarily believe he had read a lot of Robert Bartley or Robert Mundell,

they at least viewed him to have that instinct and that DNA. And I believe markets are right about that. And I think I was reflected in his first term. But I bring this up because there are those who will say, well, President Trump initiated a lot of trade and tariff talk in his first term too. And yet I want to point out that he began that in February of 2018, going into the second year in office. And in the first year, you not only had a 20 something percent up here in markets and with absolutely unprecedented low volatility, but he did it as they passed one of the most substantive

tax bills in history. The corporate tax rate went from 35% to 21% and they basically went from being a non-competitive global corporate tax rate to a competitive one. And this, it was not done through Doge, it was not done through executive order, it was not done with a tweet. It was a legislative bill signed into law. And by the way, that piece of it, the corporate tax law, doesn't sunset.

We know that there are some of the tax cuts from that 2017 bill that are set to expire at the end of this year, and we're having a discussion about them extending those things. But he made permanent in law a significant tax cut, along with rather thoughtful and well-exec executed deregulation. And then went in to stir the pot with tariff talk, but was playing with house money. The economy had grown. The economy was going to grow even further from the positivity of the tax bill. Markets were up, financial markets were positive.

And then when people say, well, there was some volatility in 2018 and the market was only down 5% that year, but it had been down at one point 19%. But I don't even know there that we can say, well, that president got a reckless with trade talk then too. I think he did advocate for policies and I believe in, he didn't follow up on most of them. He threatened certain things and didn't go a lot of places. And I talked last week or two weeks ago about some of the personnel that was around him holding a lot of the things in line.

But to the extent people say, yeah, but there was this volatility then, we have to remember that the Fed was raising rates. The Fed was quantitative tightening. The Fed had gone from 0% to 2.25% rate hikes in a couple of years. And so, being able to assess causation in 2018 is difficult because I wrote all the time about the twin dangers between Fed tightening and trade war. I'm sorry, but it's non-falsifiable. Nobody can say exactly what was creating market angst. The most reasonable explanation was a little bit of both, but that's the point is it was

a little bit of both. Where right now you have a Fed cutting rates, you have what was low unemployment, positive GDP growth, and really a very easy environment, double digit corporate profits growth last year and projected this year. So you have a very easy environment in which you can say there's questions on President Trump's tax policies for this year, and then there's the reality of President Trump's tariff policies. And so wrapping our arms around where he stands there is obviously a very prima facie acceptable thing to do in understanding current market angst. Now the sequencing matters in the sense that if what we were talking about, and forget me trying to give the president or his team political advice, that's not what this is

about. I want to talk about the market impact. If in the first year of Trump 2.0, he comes in and says, I'm extending my own tax cuts to be permanent, I'm giving markets clarity on that, we're going to do all this Doge stuff behind the scenes, and in six months I'm going to announce whatever the different report card of savings and effective cuts. Some stuff was going to leak out. Some stuff would have gotten loud.

But you announce a form of government efficiency results that are deemed successful. And then you, through budget reconciliation, pass a tax bill that is linked to some spending cuts and reforms and controlling cost of Medicaid growth or what have you. And then most importantly, whatever the tax cuts are that the president wants to get on top of extending his own prior tax cuts, that gets done. And maybe it gets done by April, maybe it gets done by June, but of course, maybe it doesn't get done until near later in the year. But my point is, let's just assume we're now going into the second year of Trump 2.0, and that got done in year one.

And the year one was spent focusing on tax reform and legislation that gets its fate of complete. Then you go in and start waving saber rattling about tariffs. And maybe you do go much more severe this time than you did last time because this is just exponentially more extreme than what was threatened back in 2018. At that point, you're likely playing with house money. And it's not just that the stock market would have been up. And so you have gains with which you can kind of go up and down and you're willing to lose some of your gains in the market. That's maybe part of it, but that's not what I'm getting at.

What I mean is that there would not be a second guessing of the intent and the priorities and the ideological foundation from which he was operating. It would have felt like, okay, he has a desire to get a better deal, to get some more equitable trade arrangements. He has a desire to accomplish some reordering of international trade and he knows some things have to get broken to get there and you can think that's a good thing to do or a bad thing to do or an unnecessary thing to do. But the point is if you believe he's going to do it and he does it in that order,

in that sequence, having banked certain successes, are we then looking at a NASDAQ down 15% in less than three weeks? Are we looking at S&P down 10% in three weeks? And of course, it could get much worse. I don't think so. So not only do I think that you in sequencing in this way lose the political capital, but you lose the financial markets capital, the financial markets credibility and trust to see it all the way through. That to me is an important part of it. But what are we really talking about?

As of right now, the S&P is down give or take 10% from where it was. This has happened basically every year. Now, 10 is worse than seven and six, there are a couple years it hasn't. There are 10, you're talking about more than a couple now, but not much. But it's pretty normal. It's pretty normal. It's pretty average. You get up to 20. That's much less common. But why would I write about the impact of markets if so far the market downside has been mostly par for the course? Well, a lot of it is this questioning of the mentality, the thinking, the ramifications

around the why of what it is. If it wasn't President Trump talking about tariffs and markets are down nine because Nvidia had a bad quarter, or if they had a bad quarter, that would be something different. But when the administration starts saying, oh, we believe a 10% correction is just a short-term pain, but we're going to get a long-term gain of recaptured American manufacturing. If they really believe that, then 10% is the beginning of a drawdown, not the end. Now, do they want to believe it? I think so. But if you got to a pain point of 20%, do they pivot at that point? I think that's the big

question we're trying to answer right now. Does the administration not believe it at all that they have to say it to sell it, but they don't really believe short-term pain is necessary or they don't really believe short-term pain is going to happen? The problem is that it's very difficult to assess what the administration itself believes and doesn't believe, let alone what it should and shouldn't believe. And the reason it's difficult is because markets are responding to very conflicting activities, as we've talked about, on again, off again, reciprocal, not reciprocal, 20, 30, 25, 50. There's been so much, and then again, the rationale behind them has been so schizophrenic

in terms of this is about fentanyl, or this is about national security, or this is about trade fairness. So, so many different rationales are put out. Markets are understandably having to second guess where it's all coming from. But markets have, historically, with this president, Trump 1.0 and Trump 2.0 had this belief in a put that fundamentally he just cared so much about

what markets would do. And I got to say that term was first coined in the context of what they called the Greenspan put. And I've written about in the past, it was a very real thing and it came from a philosophical belief of long time Federal Reserve Chairman Alan Greenspan that I actually happen to not believe in, but I most certainly believe that he believed it. And I certainly believe it was a part of the so-called Greenspan put, that he was there to use central bank activities as a backstop to risk assets is undeniable.

And one of the big economic stories of my adult life and something I've studied and covered immensely. Him being right or wrong about it as a material, he had the belief and that put came from this sort of wealth effect doctrine that Greenspan believed in for right or for wrong, that as risk assets deteriorated below a certain level, it would bleed over into consumer activity. It would bleed over into the real economy and whatnot. The Trump put doesn't stem from a belief, a philosophical economic understanding.

And even Greenspan's, again, I'm not saying it was a right one, I'm saying it existed. Trump's put more comes from his need to backstop markets, believing not so much in their interconnectivity to jobs and wages, but rather markets interconnectivity to assessing his own performance, being a reflection on him. And so he desired a more market- friendly posture because he viewed it as validation for himself. And again, people could think that's a good thing or a bad thing. I'm just simply saying, I think it was a thing. And so now the question is not just as he pivoted away from that, is that put gone, but does that mean something even bigger than markets itself? And that's where I have some data at divinicaf.com in

charts where I talked a couple months ago about how small business optimism, the NFIB index had flown higher after he was reelected. And it had flown higher when he was elected the first time. And a lot of that small business optimism is measured across an index of various measures and surveys. And it was based on hopes and aspirations and beliefs that the president was going to be friendly in areas of energy and tax and regulation and all that kind of stuff. Right now we're dealing with an MFIB small business uncertainty index at record levels. Now uncertainty and optimism are different. I'm not saying it was a high optimism index, now it's a low optimism index.

The uncertainty index is measuring something a little different. In theory, you could be certain about a very bad outcome, and so you'd have low uncertainty, but still low optimism too. But in this case, you went from a high optimism to a high uncertainty because of a very negative situation, and that is uncertainty, undermining hopes for better conditions across small business. And that's a big deal. You say, well, the S&P 500, Fortune 500, the larger elements of corporate America matter more. But I just want to remind people 131 million people do not work for Fortune 500 companies. 28 million people do. That's a lot. But you're talking about five, more than five times more, right around five times more, that work in sometimes mom and pops, small business, family-owned, 100 employees, 20 employees.

mom and pop, small business, family-owned, 100 employees, 20 employees. That is a massive element of where jobs and wages and productive economic activity are housed in our economy. So this matters. And I think that it is a really tall order to expect small businesses in this environment of potentially massive higher input costs, retaliatory tariffs if they export, higher prices if they import, uncertainty of what the rule may be, a bad news one week, but then it comes off the next. And so do you want to just wait to place an order until you think things go away. That uncertainty to me leads to compressed, small business economic activity. And so when we're talking about things that can be seen and visible, we have

to look at the invisible components. And this is where, when I see small business uncertainty skyrocketing, I have no doubt it leads to invisible effects that become very detrimental. One of the focuses that exist right now is, well, these tariff concerns are going to lead to consumers spending less. And maybe it's true, maybe it's not. You know how I feel on this subject.

There's not a lot, in my opinion, that is useful in making Americans spend less money. But let's just say that we're true. Is that the biggest threat? Do we really think it's a worse idea for tariffs to impact consumption than we do production? What are people supposed to consume if there isn't production? This is a very fundamentally important issue about economic philosophy, which is why I'm a production first or supply side economist, because I do not believe that the worst effects can ever be measured in consumers because I think consumers are fundamentally wired to consume, but producers can be impeded from production.

And that's what the supply side is about is removing impediment to produce incentive and driving economic growth that way. And that is, I think, the issue that we have to question from a small business standpoint, big business. Are we going to impede productive activity through some of these tariff and trade policies, ideas, aspirations. And when an administration says, well, yeah, there might be short-term gain, but we think it'll all turn out in the end. And there isn't really a plan for that. There's a cavalier approach

to what the short-term pain may be. There's other adjacent things to share that cause people to wonder if those fundamental commitments to prosperity, productivity, economic growth are still there. I think it is causing an underlying uncertainty in markets that goes beyond just tariffs. And when Secretary Leopold says something, and in the Ferris administration, I didn't hear anything from President Trump on this. I didn't see a paper from the White House. I didn't see even the Commerce Department follow up with enough meat on the bone. There may be some more things going on,

but when I hear the Secretary say, we are going to create 5 million government guaranteed jobs at 125,000 a piece or something, you're talking about a command control vision of economy that you can understand why markets would be very concerned about anti-competitive risks there. So it's more than just tariffs and it's more than just Wall Street. It's more than just consumption and all of these underlying issues lead us to a conclusion. The Trump put is not necessarily gone yet, but it is definitely being called into question for legitimate reasons. The issue is that thus far a 10% drawdown is not enough to create clarity.

Like I said, the 10% is kind of normal part for the course. If it wasn't this, it could have happened anyways. It did happen because of this, but it could have happened for some other reason. If there is a point where the administration is going to refocus, that point hasn't come yet. And will they refocus before getting to that point? And by refocus, I mean, we cover a voice for the supply side agenda, find an off-ramp to the current, and I think counterproductive protectionism that I do not believe is going

to protect anyone? Is there a point where they're going to try to find that off-ramp or is there going to be a point that we get to, maybe let's just say for sake of argument, it's down 20% markets and that's where they have to pivot. I believe that it's entirely possible that they wait too long to pivot. We enter recession. Would a recession event refocus the president to the economic priorities of his first term? Or do we really believe he doesn't care about those perceptions?

And do we really believe that his market legacy, his economic legacy being impacted that way would not chase him to some degree. I don't know the answer. You don't know the answer, but I will tell you that I think that's where we are in the process that the Trump put is called into question for good reason as we've gotten to this point and that there is either an off ramp and reversal before you get to a pivot point or there is an undefined pivot point whereby those changes come, and that's been my forecast for those reading me even before the election,

right after the election, and certainly before he escalated the tariff conversation. So, I'm staunchly critical of what I've seen in the last few weeks in the administration, and yet I'm generally optimistic that the better angels will end up prevailing in the end. It's just that I don't know what will catalyze those better angels to return. And I don't just mean market. I'm talking about overall economic administration, and markets are one element once it gets measured. There's a lot of unknowns ahead. And so markets don't like unpredictability, markets don't like uncertainty, markets don't like chaos, but none of those things are new. I think what's new is that the president of the United States likes those things. And it

makes us assessing this all the more difficult. From investor standpoint, you want to own higher quality things. You want to be in NASA allocation that exposes you to volatility that you're comfortable with. You want to be opportunistic along the way of certain things get severed enough or disconnected enough from a fair value price that you can go in and be buying. You don't want to be rushing to panic buy, and you certainly don't want to ever, ever, ever, ever, ever be panic selling. Your proper fortification is never something you do after market drop. It's always something you're supposed to done before an asset allocation that properly calibrated

for different things that can go wrong. And there's a lot of things that could go wrong aside from a Trump trade tear to floor. This happens to be what we're doing with now. But my point is from investor standpoint, the things we're doing and not doing and believe in doing, they're not even remotely different than they were a month ago, a year ago, a decade ago. Now, where is it gonna go? I think that's the question is let's just

say for sake of argument we're down to 10 and let's say for sake of argument 20 is a place where Trump starts wanting to pivot back. Does he pivot on the way to 20? Does he decide to find an off ramp that saves face, gives him ability to claim victory, get a couple of good headlines? Or does he want to push this message that we're going to blow up the international trade order? The consequences of that are beyond what I believe he could tolerate for his legacy. Is that entire theory wrong? I don't think it is, but I do believe that that uncertainty is what markets are right now dealing with.

And that's the story we're in regarding the Trump put, which has certainly, shall we say, had its strike price reset this week. Thank you very much for listening, as always, to Diving in Cafe. There are a few charts at DivinginCafe.com. I encourage you to look at. One of my favorites is the chart of the week of what the S&P 500 has done in this first six weeks of President Trump. Now we're now getting close to eight weeks this term and what it had done in the first

beginning of the last term and just getting a kind of clarity around why and what that looks like. It reinforces that sequencing theme I talked about. So those wondering where we're going to go next week, I happened to be recording this after the markets closed Thursday. So by the time you're listening to it Friday, markets could be up 500, they could be down another 500.

I have no idea. But regardless, we're in the period of more downside volatility, more downside drama. I expect there could be more of that. That's where we are right now. With that said, I will look forward to being with you again in the Divinity Cafe on Monday. Let's see, I am in New York on Monday. We'll be doing Divinity Cafe from the office there.

And then I'll be in Washington, D.C. Tuesday through Friday. And there are a couple of meetings I'll be having there that I look forward to hopefully being able to share some insights with you next week. We will see how all that goes. In the meantime, thank you for listening. Thank you for watching and thank you for reading The Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC, advisory services are offered

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