Impact of Interest Rates on Stock Market in Trump's Second Term
Former President Donald Trump often gauged his success based on stock market performance. However, in his second term, Trump's influence over interest rates, a crucial market driver, may be limited.
Rising Interest Rates
Since Trump's election in 2016, the 10-year Treasury yield has surged by around 40 basis points. Markets anticipate reduced interest rate cuts from the Federal Reserve due to concerns about persistent inflation.
At nearly 4.8%, the yield is its highest since April 2024. Experts believe higher rates deter investors from purchasing stocks. Similar rate increases in 2024 and 2023 coincided with significant stock market declines.
"Equity returns and bond yields have a negative correlation," said Morgan Stanley's Mike Wilson. "Rates up, stocks down, and vice versa."
Trump's Influence
Trump has limited power to influence lower rates. His policies, such as tariffs, have often led to higher yields. For instance, on January 6, Trump's denial of a tariff expansion report led to a yield spike.
Market participants fear that tariffs may exacerbate inflation, a concern shared by the Fed.
Fed's Independence
The Fed is an independent body, making it immune to Trump's directives to cut rates. Fed Chair Jerome Powell has emphasized his refusal to take orders from the president.
Market Predictions
The rise in rates remains a "systemic problem" for stocks. Markets speculate on Fed's future actions.
Softer economic data may reduce rate pressures and boost equities, as suggested by Piper Sandler's Michael Kantrowitz. However, recent strong employment reports have kept rates high and stocks down.