Is the “Trump put” gone?

​This week, the Trump administration exhibited a notable indifference to stock market fluctuations, maintaining a focus on broader economic policies. Despite a sharp sell-off linked to new tariffs on goods from Canada, Mexico, and China, President Trump remained unfazed, emphasizing that these measures are integral to his mission of revitalizing America's economic strength. Treasury Secretary Scott Bessent highlighted a shift in focus towards Main Street rather than Wall Street, underscoring the administration's commitment to long-term economic goals over short-term market movements. This approach reflects a higher tolerance for market volatility in pursuit of strategic objectives.

• During Donald Trump’s first term, the President seemed to be very focused on the strength of the US stock market
• He would regularly tout the stock market being at all-time highs as something that he was responsible for, and many thought he viewed it as a barometer for his performance
• This dynamic was coined as the “Trump put” (a put is an option that protects you when a stock goes down)
• The President’s second term comes on the back of two 20%+ years for the S&P 500, and he does not seem to be as worried about near-term declines
• Secretary Bessent made several appearances this week, where he outlined their strategy of shifting the economy from the public sector to the private sector
• He made it clear that there may be a transition period as the markets adjust, but that the longer-term strategy of deregulation, lower taxes, and more aligned trade regimes would lead to a healthy economy and a strong stock market

China gives more stimulus details

​This week, during the National People's Congress, China unveiled a comprehensive stimulus package aimed at sustaining economic growth amid escalating trade tensions with the United States. The government set an ambitious GDP growth target of around 5% for 2025, accompanied by plans to increase the budget deficit to approximately 4% of GDP. Key measures include issuing 1.3 trillion yuan in ultra-long-term special treasury bonds to support consumer spending and infrastructure projects and enhancing support for high-tech industries such as artificial intelligence and green engineering. Additionally, the People's Bank of China signaled readiness to cut interest rates and inject liquidity to bolster the economy if necessary.

• China’s economy has been in the doldrums ever since the Covid lockdowns
• Late last year, Xi Jinping announced that the government would be finally doing something about it
• Although the initial market reaction was jubilant, there were not much in terms of details
• This week, the Chinese government announced key details, including that they would be willing to expand the deficit and issue long-term debt
• The Chinese stock market is already one of the best-performing markets in the world
• On the other hand, the S&P 500 slipped into negative territory this week on a year-to-date basis

10-year, mortgage rates come down

Since the start of the year, both the 10-year Treasury yield and 30-year fixed mortgage rates have declined, offering some relief to markets and homebuyers. The 10-year Treasury yield has fallen from its high of  4.79% earlier this year to 4.28% as of this week — a drop of about 51 basis points. Similarly, the average 30-year fixed mortgage rate has eased from 6.91% at the start of the year to 6.63%, a decline of about 28 basis points. While both remain elevated compared to historical norms, these gradual declines reflect growing expectations that the Federal Reserve could ease policy later this year if inflation continues to moderate.

• Mortgages and other consumer credit rates are largely based on the 10-year yield
• Consumers have been frustrated that despite the Fed lowering interest rates, mortgage rates have remained elevated
• This is due to the 10-year yield actually rising since the Fed started lowering interest rates
• The 10-year yield is a market rate not set by the Fed
• It is a reflection of a number of factors, including inflation, the health of the economy, and the US fiscal situation
• The Trump administration has made lowering the 10-year yield an important goal of this term
• With mortgage rates under 7%, we have already seen activity picking up in the housing sector, with refinancing activity increasing 37%
• Purchase activity, which refers to home buyers applying for mortgages, rose 9% from a week ago

‍