Markets are not enjoying Donald Trump’s tariffs. Some 125 days have passed since his second election victory and the S&P 500 is on a clear downward trajectory thanks to Trump’s tariff policies and other poor US economic data. After the same number of days following Biden’s election, the S&P was up 13 per cent; for Obama’s second term it was up nine per cent; and at the same point in Trump’s first presidency it was up 11 per cent. For Trump 2.0 it’s down 3 per cent from election day.
Trump has summoned Wall Street bosses to the White House in an attempt to calm nerves, but while US equities struggle, some clear winners are emerging as investors shift their money elsewhere. So, who stands to gain?
One effect Keir Starmer should be very pleased about is the effect on sterling. The pound has rebounded against the dollar and is up 5 per cent in the 50 days since Trump’s inauguration. The result: it will be cheaper for us to import goods. That could help offset the inflationary pressures which led the Bank of England to warn that consumer price inflation could hit 4 per cent this summer. Oil prices are down too, which should also help ease inflation fears.
In Europe defence stocks have soared thanks to the dawning reality that European nations are going to have to fund much more of their own defence. Starmer has cut the foreign aid budget to fund a modest spending increase here, while Germany has committed to finding a way to unlock hundreds of billions of euros for rearmament. Shares of German arms maker Rheinmetall are up 93 per cent since the start of the year to a record high valuation and as Bloomberg points out, that makes the tanks and bullets manufacturer more valuable as a multiple of its earnings than the luxury LVMH group.
Elsewhere, investors in gold will be very happy as the price has surged above $2,900 per ounce, thanks to fears of more tariffs on imports of the precious metal. This rush to import gold could also mean that the Atlanta Fed’s ‘nowcast’ of GDP dramatically contracting – which set off much of the economic anxiety – could in fact be dramatically wrong.
For Americans one immediate win – or at least a nice distraction from falling stocks and recession fears – could be tax cuts. The President’s commitment to cut corporation tax from 21 per cent to 15 per cent (it’s 25 per cent in the UK) could be sped up as part of efforts to shore up the economy. Good news for American businesses and likely bad news for us as it becomes more and more attractive for British firms to consider relocation, especially given that Rachel Reeves’s £25 billion tax raid that already looks to be discouraging companies from hiring.
But is all this part of Trump’s broader economic strategy? As Matthew Lynn argued elsewhere on Coffee House this morning, ‘Trump knows that Wall Street was massively overvalued’ and that his desire to use Elon Musk to shrink the state and end deficit-funded spending will inevitably lead to an economic slow down. That may be what he wants. It could all be part of a – risky – plan to take the froth out of the market now and lessen a deeper crash one or two years down the line.
Whether this is a calculated move or a dangerous vibe based gamble remains to be seen. As Trumponomics takes shape, the winners and losers of his policies are beginning to emerge.
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