Key Takeaways

Investors cheered Donald Trump's election victory in November, bidding up stocks to record highs in anticipation of tax cuts, deregulation, and a business-friendly Washington. Trump's on-again, off-again approach to tariffs has thrown cold water on that optimism in recent weeks.

A Rough Start to Trump 2.0

The S&P 500 is off to its worst start for a presidential term since 2009, when Barack Obama entered the White House in the midst of the global financial crisis . The benchmark index had, as of Tuesday's close, fallen more than 7% since Trump was inaugurated for a second term on Jan. 20. The tech-heavy Nasdaq Composite has had it even worse; it was down more than 11% before rebounding slightly on Wednesday.

The stock market has been shaken in recent weeks by Trump's tariffs, which many economists have warned could reaccelerate inflation . The levies, and the unpredictable way they've been rolled out, have also upended business leaders' expectations for the U.S. economy, threatening to slow hiring and investment. Finally, Trump's tariffs have eroded many everyday Americans' confidence in the U.S. economy .

Ultimately, the risk that tariffs usher in a period of stagflation , in which growth is slow and inflation high, has offset most of the optimism on Wall Street about Trump's regulatory and tax agendas.

Trump Cites 'Some Disturbance' to Economy, Markets

Trump hasn't done much to stabilize markets in the last week, a notable departure from his first term, in which he regularly invoked a strong stock market as a sign of his success. Over the weekend, Trump declined to say whether he thought the U.S. could enter a recession this year and, when asked about the market's reaction to his policies, said, "You can't really watch the stock market."

Trump and his Cabinet members have characterized the economic turmoil some forecasters see on the horizon as "a detox period," "a period of transition," and "some disturbance." But what looks like "some disturbance" in Washington looks like a recession to many on Wall Street. Since Trump's inauguration, stocks in traditionally defensive sectors like consumer staples and healthcare have risen, while recession-sensitive sectors like consumer discretionary and financials have slumped.