Trump 2.0 and Wall Street: Unanticipated Complications

The beginning of the Trump 2.0 administration has not met Wall Street's expectations. Dealmaking experienced its slowest January in over a decade, a tax break for hedge funds and private equity firms faced threats, and major banks faced scrutiny regarding "debanking" practices.

M&A Activity Dwindles

According to LSEG data, US M&A deal announcements in January reached their lowest level since 2014. The administration's newly appointed antitrust officials blocked a potential merger between Hewlett Packard (HPE) and Juniper Networks (JNPR), signaling a less permissive stance towards large mergers.

Tariff Uncertainties Weigh on Business

The president's proposed tariff plans have created uncertainty among businesses, making it difficult to plan major investments and anticipate borrowing costs. UBS Group AG CEO Sergio Ermotti acknowledged that geopolitical and tariff concerns are creating market uncertainty.

High Valuations Impact Deal Pace

The historically high level of corporate valuations may also be contributing to the slowdown in dealmaking, according to THL Partners co-CEO Scott Sperling. Elevated valuations may reduce the potential financial returns from M&A transactions.

Big Banks' Resilience

Despite the challenges, big bank stocks have remained resilient. JPMorgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Wells Fargo (WFC), Bank of America (BAC), and Morgan Stanley (MS) have outperformed major stock indexes since the start of January.

Political Heat on Wall Street

A notable development has been the increased political scrutiny faced by Wall Street. President Trump publicly confronted Bank of America CEO Brian Moynihan and JPMorgan Chase CEO Jamie Dimon, alleging that banks were "debanking" customers based on their personal beliefs or industry affiliation. The Republican Party has also pressed the issue during congressional hearings.

Tax Break Threat to Private Equity

The White House has indicated that President Trump intends to eliminate the carried interest deduction, a tax break benefiting private equity and hedge fund managers. This could have a significant financial impact on the industry.

Banks Optimistic Despite Challenges

Banks remain optimistic that resolving the "debanking" issue and regulatory reforms could ultimately benefit them. The industry is advocating for a clearer regulatory framework regarding high-risk customers. Lobbyists for private equity and hedge funds are also preparing for potential policy changes affecting their industries.