This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.
After wiping out the last of their “Trump bump” gains, US equities were surprisingly calm Wednesday following their tariff-fueled selloff earlier in the week.
Given today’s mild gains come after a particularly spirited address from President Trump last night, during which he doubled down in defense of his trade policies, I’m betting investors are expecting the powers that be to step in.
Whether this comes in the form of a “Fed put” or a “Trump put” is anyone’s guess. To be fair, investors probably don’t care which, as long as stocks start to see some relief.
To be clear, Trump last night made no indication that he’s concerned about sliding stock prices. He reiterated that short-term pain is to be expected, but long-term gains will swiftly follow. If there’s a specific level the S&P 500 has to hit for the administration to start walking back its more aggressive economic policies, he didn’t seem concerned about reaching it.
Tariffs “are about protecting the soul of our country,” Trump said Tuesday, adding that he is “OK” with “a little disturbance.”
His Cabinet, however, seems to be doing damage control. Commerce Secretary Howard Lutnick told Bloomberg this afternoon that Trump is “listening to the offers from Mexico and Canada” and “thinking about trying to do something in the middle.”
Trump met with Canadian Prime Minister Justin Trudeau today to talk tariffs. But Trump said in a Truth Social post that he’s not budging on the levies until there’s more action to stop the flow of fentanyl. The president did however grant a one-month exemption to Ford, General Motors and Stellantis for tariffs imposed on Mexico and Canada.
This signalling was enough to calm markets — for now at least. The S&P 500 was trading 0.9% higher at 2 pm ET while the Nasdaq Composite had gained 1.1%.
Like I said before, if there’s an amount of S&P 500 pain Trump is willing to endure, we don’t know it. But analysts have guesses.
Bank of America strategists say the so-called S&P 500 “strike price” for a “Trump put” — i.e. a policy change — is around 5,720. That’s where the index closed on Nov. 5. Yesterday, the index closed around 5,780, which just so happens to be the lowest close since Election Day.
Others say anything greater than a 5% single-day loss would be enough to trigger a policy shift from Trump.
DataTrek Research founder Nicolas Colas, however, says the real figure to watch is volatility. He says a VIX of 36 or above is usually enough to trigger a “Fed put,” but Trump’s volatility strike price could be higher or lower.
Colas added that some mild relief in markets isn’t enough to convince him that this current bout of volatility is over. He doesn’t think we will see “tradeable lows” until the VIX hits 27+. We’re at around 23 today.
The Fed’s next interest rate decision comes on March 19 (this coincides with the Blockworks Digital Asset Summit in NYC, where Ben and I will both be. You should come too).
