President Donald Trump’s whipsawing economic policies have created a profound sense of uncertainty in the stock market. Investors are struggling to navigate the administration’s on-again, off-again threats of tariffs, refusal to rule out a severe downturn, and chaotic cuts to the federal government. For many of Trump’s supporters, the president is doing exactly what he should be doing as a savvy negotiator: keeping trading partners like China and Mexico off balance to gain the upper hand.
But for investors, such dizzying shifts have made the stock market in the early months of the Trump administration “untradable,” said George Goncalves, head of U.S. macro strategy at MUFG Securities. Wall Street is emphatically rejecting President Trump’s chaotic economic agenda. The Dow has fallen 10% from its all-time high set just three weeks ago and is approaching correction territory.
The tech-heavy Nasdaq experienced a similar decline more than a week ago. The Russell 2000, made up of smaller businesses typically more exposed to economic shifts, has fallen a stunning 18.4% from a high just after the election, nearing its all-time record lows. Traders are concerned that Trump’s policies could inflict serious damage on the economy.
Despite Trump blaming the inflationary problems on former President Joe Biden, the market had surged after Trump’s November election, optimistic about his promised tax cuts and deregulation. However, his stance on tariffs and immigration policies has unsettled the market. Economic indicators reinforce the growing concerns.
Trump’s unpredictable tariff threats
The University of Michigan’s consumer sentiment index plunged to its lowest level since 2022. The Conference Board’s Consumer Confidence Index showed a significant drop in consumer confidence in the first two months of the year.
Trump has acknowledged that tariffs could cause a “disturbance,” saying his economic plan could be initially painful. Mainstream economists warn that Trump might be underplaying the damage his policies could cause. Uncertainty about tariffs is paralyzing businesses, and mass layoffs of federal workers could damage local economies.
Immigration crackdowns could also hurt labor-dependent industries like healthcare, construction, and agriculture. As of now, the S&P 500 is down nearly 9% from its February 19 peak, leading Trump to acknowledge that markets may experience volatility due to his tariffs on Canada, Mexico, China, and the European Union. The critical question remains: at what point does the economic downside become too politically costly for Trump?
Marko Papic, chief strategist at BCA Research, believes Trump’s breaking point could come with a 15% to 20% decline in the S&P 500, which might force the president to reconsider his trade war. “For sure he’s going to care about the stock market because he’s going to lose political capital if the economy goes into recession or if households feel poor,” said Papic. “There’s absolutely no way he’s impervious to that.”
If financial and economic volatility persist, other checks on Trump’s ability to enforce his policies will likely emerge.
Despite the political risks to Republican members of Congress for opposing Trump’s agenda, a weakened economy and struggling stock market could push some senators or representatives to dissent. In such a scenario, Trump’s consolidation of power might look drastically different in a few months.