Wall Street's Trump 2.0 Expectations Fall Short: Dealmaking Slows, Tax Break Threatened, Banks Grilled

Key Highlights:

* January marked the slowest dealmaking month in a decade, with announced M&A deals in the US at their lowest since 2014.
* Antitrust regulators blocked a potential merger between Hewlett Packard and Juniper Networks, signaling a tougher stance.
* President Trump's tariff plans create uncertainty for businesses, impacting investment and borrowing decisions.
* Despite these challenges, big bank stocks have outperformed major indexes since January.
* Banks face political scrutiny over "debanking" claims, prompting industry lobbying for regulatory relief.
* The White House seeks to close a tax break for hedge funds and private equity firms.

Overview:

The early months of Trump's second term have not aligned with Wall Street's optimistic predictions. Dealmaking has slowed significantly, and a prized tax break for hedge funds and private equity firms faces potential elimination. Additionally, big banks have come under fire over allegations of "debanking" certain customers. These unexpected developments have cast doubt on the expected M&A boom and more favorable regulatory environment that were anticipated with Trump's re-election.

Dealmaking Slowdown:

According to LSEG data, January witnessed the lowest number of announced M&A deals within the US since the same month in 2014. This slowdown is attributed to geopolitical uncertainties surrounding tariffs, high corporate valuations, and the potential for stricter antitrust regulations.

Antitrust Stance:

The Trump administration's antitrust enforcers signaled a less permissive attitude towards mergers, blocking a proposed union between Hewlett Packard and Juniper Networks. This action indicates a heightened scrutiny of large-scale transactions.

Tariff Uncertainty:

President Trump's tariff plans have created uncertainty for businesses, hindering their ability to make long-term investment decisions. Sergio Ermotti, CEO of UBS Group AG, expressed concerns about the impact of tariffs on dealmaking capabilities.

Bank Stock Outperformance:

Despite the overall market downturn, big bank stocks have performed well since the beginning of January. JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo have risen between 12% and 15%, while Bank of America and Morgan Stanley have gained 6% to 9%.

"Debanking" Scrutiny:

President Trump has publicly confronted Bank of America and JPMorgan Chase CEOs over claims that they are "debanking" customers based on personal beliefs or industry affiliations. Both banks have denied the allegations. Democrats and Republicans have expressed support for addressing the issue, leading to industry lobbying for regulatory relief.

Carried Interest Tax Break Threat:

The White House has indicated that President Trump intends to eliminate the carried interest deduction, a tax break for hedge funds and private equity firms. This could have significant financial implications for these industries.