What markets bet President Trump will do

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This is Planet Money from NPR. On the morning after the election, as Americans were still processing the results, people with money were making moves.
I'm talking about investors, traders, hedge fund Wall Street types. Right now the stock market is rallying around the news that former President Trump will be named the 47th president of the United States.
Bond yield surging this morning as investors react to Donald Trump winning a second presidential term. Cryptocurrencies rallying big time.
We're seeing Bitcoin now above $75,000. The financial markets had some major reactions to former President Donald Trump's win.
And if you read between the lines, if you break down what these financial types were buying and what they were selling, you can learn a lot about where the economy might be headed. Or at least where people were willing to bet the economy is headed.
Hello and welcome to Planet Money. I'm Jeff Guo.
And I'm Erika Barris. And I'm Sally Helm.
And I am Keith Romer. Yes, all four of us have assembled today to think about a big question.
What could the next four years look like for the economy? Well, as a candidate, Trump promised all kinds of things, from lower taxes and lower inflation to a lot more tariffs. But how much of that actually comes to pass is kind of anyone's guess.
Yeah, and one of those guesses comes from Wall Street, from people who were making big financial bets on what will happen to the country. So today on the show, we are going to decode all of the signals coming from the markets after the election.
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Plus get delivery in as fast as 30 minutes. For the first part of today's show, we're going to focus on the stock market.
We're

going to decode how the stock market reacted to Trump's win and what that tells us about what

Wall Street thinks the next couple years are going to look like. Now, one of the most dramatic

things that happened on the day after the election is that stocks overall soared. The Dow, the S&P, the Nasdaq, they all hit record highs on Wednesday.
A lot of that overall spike in stocks can be explained by the simple fact that Trump promised to cut taxes on companies, which companies, of course, love. Also, that was exactly what he did the last time he was president.
This time, he says he's going to cut corporate taxes even more. But if you look more closely, certain parts of the stock market went way up and other parts went way down.
And that gives you some interesting clues about what Trump's win might mean for different parts of

the economy and for our country. So to start off, we're going to decipher why some specific parts of the stock market went way up after the election.
And that's where I come in. Erica Barris.
Hello. Hi, Jeff Guo.
So, Erica, you looked at three sectors that seemed to benefit the most from Trump's win. Right.
The three surgiest sectors. And for this, I spoke with Art Hogan.
Art is a longtime market strategist. And he told me that every four years, the presidential election is a very busy week for analysts, strategists and market watchers.
It's kind of one of our Super Bowls, right? It's a Super Bowl of information overload for everyone. Yeah, a frenzy of trading and activity.
First up on our list of the surgiest sectors in the stock market, banking. Financial companies like JPMorgan Chase, Wells Fargo, Bank of America, Goldman Sachs were up by as much as 13%.
That's like a lot. Exactly.
And lots of like smaller regional banks, their stocks were up, too. And do you want to guess why? I'd say it's probably deregulation.
Exactly. And that's what Art said, too.
It's a clearly stated part of the Republican platform coming in that our regulations are too tight and we need to relax that to spur more economic activity. One of the big things Trump famously is not a fan of is what he sees as heavy handed regulation.
And one industry that's very heavily regulated are financial companies, especially since the 2008 financial crisis. So people think Trump is going to roll back regulations on banks.
Yeah. Like, for instance, the government requires banks to keep a certain amount of money in reserve, kind of like a rainy day fund.
And it requires larger banks to undergo regular stress tests. But the last time Trump was president, he rolled back some banking regulations for smaller banks.
And that opened up the possibility for those banks to take on more risk. Right.
I remember when Silicon Valley Bank failed last year. Exactly.
There were people who were blaming those looser regulations. Yeah.
And it is not just banks like credit card company shares. They also went up probably because Trump is not a fan of the Consumer Financial Protection Bureau because the CFPB creates, you know, pesky regulations.
Like they recently put a cap on how much credit cards can charge us in late fees. Which is good for us, but probably bad for the credit card companies.
Yep. yep.
Now, that was surgy sector number one. Surgy sector number two was crypto.
The United States will be the crypto capital of the planet and the Bitcoin superpower of the world. And we'll get it done.
The day after the election, Bitcoin was at a new historic high and crypto company stocks surged as well. Jeff Guo, do you want to guess why? OK, OK.
Is it more deregulation? Yep. Right now, the Securities and Exchange Commission, the agency that regulates investments, the SEC, has been trying to crack down on crypto companies.
And Trump has said on day one he'd replace the head of the SEC with someone who's more crypto friendly. OK, so number one, we have bank stocks went up.
Number two, we have crypto went up. What is number three? Number three on the list of surgiest sectors of the economy, tech.

Uh-huh.

Tech.

Now, this was not every tech stock, but a lot of them, like Alphabet, Microsoft, Intel, NVIDIA.

And Jeff, do you want to guess why?

I'm feeling like there's a pattern here, so I'm going to say deregulation.

Is that your final answer?

Yes.

You are correct. But also, but also, but also antitrust.
OK, I think antitrust counts as a type of regulation. It's regulation adjacent.
I will say that. It's like the government regulating how big companies can get, regulating monopolies.
Right. And the Biden administration has been very antitrust heavy.
It's especially gone after big tech. It's filed major lawsuits against Amazon, Google, Apple.
Now, Trump has not always gotten along with the big tech companies, but Art says it seems like investors believe the Trump administration would be a lot squishier on this kind of antitrust stuff.

And I think that the new administration might be more favorably inclined to say, no, that's not a monopoly.

OK, so under Trump, the age of big tech companies might continue.

Mm hmm. Yep.

All right. So to sum up, three industries that really surged after the election were banking, crypto and big tech.

And the common denominator for all three seems to be deregulation. really surged after the election were banking, crypto, and big tech.

And the common denominator for all three seems to be... Deregulation.

Deregulation.

No more rules. Wild West.

Maybe. Maybe.
We don't know.

Well, thanks for that, Erica.

Thank you, Jeff.

So far, we've been talking about things that have gone up after the election. Now we're going to talk about some things that went down.
For that, we are turning to Planet Money host Sally Helm. Bringing us down, Jeff.
Hello to you too, Sally. Hello, hello.
So tell us about some of the industries that people are betting against and why. All right.
So I talked about this with Sam Stovall, who is the chief investment strategist for CFRA Research. Sam, how many times a day would you say that you usually think about the stock market? It's more a question of how many times do I not think about the stock market since it's both my vocation and avocation.
So rare that I get to talk to someone about their avocation, Jeff. Sam means that he looks at the stock market for his vocation, his job, but also like a hobby for fun.
He told me he sometimes even dreams about it. And OK, so to start us off, I want to give you a few examples of companies that people seemed to be betting against after the election.

Volkswagen, the German carmaker, Dollar General, the U.S. discount store, and this is not a company, but soybeans.

Immediately after the election, soybean futures were down. And what unites all of those trades is one of Trump's biggest economic policy proposals, tariffs.
President-elect Trump has basically said his favorite word in the dictionary is tariff. So tariff is a tax on imports.
President-elect Trump was a big fan of tariffs in his first term. And this campaign, he has floated the idea of a 10 to 20 percent tariff on all imports.

And he has also proposed very high tariffs on goods specifically coming from China.

Yeah. And these tariffs, they would be way more than the tariffs he put into place the first time he was president.

True. And the market seems to be expecting that at least some of these tariffs could happen.

And you can see that through those three examples that I mentioned. So let us look at number one, Volkswagen.
Okay, that makes sense. Volkswagen is a foreign car company.
And if there's going to be a higher tariff on those foreign cars when they get imported, the cars are going to get more expensive for American customers and Americans will buy fewer of them. Right.
But then we get to number two, Dollar General. Their stock also went down after the election.
And Dollar General, that is a U.S. company.
Indeed it is. It is headquartered in Tennessee.
But Sam told me a lot of their cheap goods come from overseas. You know, that's part of their business model.
Their attraction to consumers is cost. And if they can purchase items that cost very little to produce, they were produced in Vietnam, in China.
Well, if there is going to be a tariff, an additional charge placed on these items produced overseas, that is going to be passed to the consumer. Right.
Which could hurt companies like Dollar General because part of their sell is that the goods are supposed to be cheap. Exactly.
This could also be what's going on for a company like Wayfair. They were also down after the election.
But Jeff, now we get to the last example, which is a weird one. Soybeans.
Soybeans, which are not a company. They're not a company.
That's not a knock on soybeans.

No, no, no.

Very nice bean.

No, soybeans are great.

In fact, a lot of them are grown right here in the U.S.

They are.

But we sell a lot of them in China.

And so the worry is, tit for tat, if the U.S. increases its tariffs on Chinese imports to the U.S., well, then China will increase tariffs on U.S.
exports to China, soybeans among them. This prediction is trade war.
That happened under the first Trump administration, right? China slapped a tariff on our soybeans. So the market's vision is a world with more trade barriers kind of in all directions.
And in fact, global shipping companies were also down,

maybe because in a new reality where there's less trade,

there wouldn't be as much need for them.

All right, Sally.

So to recap, as we heard from Erica, the stock market overall is up.

Some stocks are way up.

But some of the specific companies that are down right now

might be down because they could in some way be hurt by these potential tariffs. Correct.
But there is actually one more market prediction that I want to tell you about, Jeff, another sector that is down. And this one is interesting to me because it exposes maybe a weakness of some of these market predictions.
So after the election, a lot of renewable energy companies were down, like wind and solar, stuff like that. I guess maybe that's not surprising because Trump was kind of this drill, baby drill type candidate.
So you'd think he might undo some of the big investments President Biden has made in renewable energy. Right.
Largely through the big climate law, the Inflation Reduction Act, or the IRA,

which created all these subsidies and tax credits

to help people buy solar panels and electric cars,

also tried to incentivize companies

to produce more of those things domestically.

And President-elect Trump has suggested

that he wants that law gone.

My plan will terminate the Green New Deal,

which I call the Green New Scam.

Greatest scam in history, probably. It's unclear whether by that he means the IRA.
And he has also promised to rescind IRA spending. Yet Trump wants to take back unspent IRA money.
And that, by the way, is Robinson Meyer, the founding executive editor at Heatmap News. He covers climate really closely.
So he was a good person to ask about whether this market prediction will come true. People seem to be trading on the idea that Trump might go through with it.
But Rob told me the IRA could be hard to repeal because it is built such that the benefits of the law are spread out to a lot of companies and districts and voters. And so it's going to have a maybe surprising political coalition behind it.
A lot of red states benefit from the IRA. So districts that voted for Trump in 2020 received three times more funding from the IRA than districts that voted for Biden.
Yeah, like there's a lot of sun in the sunbelt, Jeff. There's a lot of wind in the plains.
And so a lot of these new factories that the IRA helped spawn are in red and purple areas. Georgia, North Carolina, Texas.
And once you have created a good manufacturing job in Georgia, like people are going to fight to keep it. And so far, we have seen some evidence that that is happening.
Earlier this year, 18 House Republicans wrote to Speaker Mike Johnson and said, hey, stop saying you're going to repeal the IRA because it's really bad for us. That's interesting.
I mean, it's not a group that's sort of like widely known for its climate commitment. No, in fact, it's I mean, this is not a very this is a House Republican caucus is not a very climate friendly group of people.
Rob said if we keep seeing that kind of thing, plus voters and companies agitating to keep jobs and subsidies, then maybe the IRA will survive.

Yeah, I mean, he thinks it's going to be a big fight.

And, you know, the market's immediate gut reaction seemed to be the IRA will lose that fight, which could turn out to be true.

But of course, this is going to play out in the political arena.

Like, it's not going to be decided by the traders.

So I'm sure they will be watching closely and continuing to make their bets. Totally.
Sally Helm, thank you so much. Thank you, Jeff.
Now, it is not just specific stocks or industries or crops whose fortunes are rising or falling after the election. These past few days, the market has also been sending signals about the larger economy.
Do the Wall Street types think that Trump is going to make good on his promises to lower inflation? Do they think that the economy overall is headed in a good direction? We're going to decode all of that after the break. and fueling innovation, like pioneering AI technology for more precise cancer treatments, earlier Alzheimer's detection, and predicting storms from space.
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So far today, we've been mostly talking about the stock market. But now we are going to turn to a different market, one that gives us a glimpse into what finance types think is going to happen to the economy as a whole.
I'm talking about the giant $28 trillion market for U.S. Treasury bonds.
And for that, I'm going to bring in Planet Money host Keith Romer. Hello, Jeff.
So, Keith, treasury bonds. What a market.
Am I right? Yes. So what's been going on there? So treasury bonds, as you know, they are basically IOUs from the U.S.
government whenever the government needs to borrow money. Which it does, like, all the time.
Right. It borrows it in the form of these IOUs.
They pay a guaranteed amount of interest. And if you buy one and you change your mind, you can just sell it on to somebody else.
This happens all of the time. The treasury market is a giant, giant, giant market.

And once it became clear that Donald Trump was going to be the next president,

lots of people decided to sell their treasuries.

The price for treasuries went way down.

Sanal Desai, who is the chief investment officer in charge of fixed income at Franklin Templeton, she told me this was a big deal. For the treasury market to move by this much in a very short period of time, that shows you a big move in sentiment.
And that's what we saw. That's what happened this last week.
Ten-year treasuries, which, as the name suggests, mature over 10 years, on Wednesday, they had the biggest one-day move in over two years. Now, the way people in bond world talk about this is there was a big increase in bond yields.
Yields, they go up when prices go down, yada, yada, yada. But because it is a little easier to make sense of, we are going to be talking about bond prices today.
Anyway, Sanal says the important thing here is not just how big that downward move in treasury prices was. It's what a move that size means.
Now, all this is a question of what people believe is going to happen. And this is where I think it gets really quite interesting.
Sunal says, think of the Treasury market as offering a prediction. A prediction of what the economy will look like in the future.
When folks in the Treasury market knew for certain on Wednesday that Donald Trump would be the next president, their picture of the future changed in two ways. Way number one was about inflation.
Right. So Donald Trump talked a lot about inflation on the campaign trail, how he was going to bring down prices.
But Sanal says when people sold off their treasuries on Wednesday, it was partly a prediction that Trump's policies would not, in fact, bring inflation down,

but instead would make inflation go back up.

And the logic for the sell-off is this.

If inflation is high in the future, then the value of your government IOUs goes down. Because when it's time for the government to pay back your IOUs, those dollars are worth less.

Now, I asked Annal what was behind why the Treasury market thinks inflation will go up? What was the market looking at? I think the market was looking at two things. First thing was, Trump is planning on cutting taxes, and I hear I'm talking about corporate taxes.
The assumption is that cutting corporate taxes and reducing regulations will fire up the famous animal spirits, which will encourage corporations to hire more, demanders more, people's wages. So there's this cascading effect that people hope will happen.
And that is a part of what markets were reacting to. People looking forward to that cascading growth.
That is part of what drove that big broad-based jump in stocks on Wednesday. But Sanal says there is a flip side to that coin.
Okay, you cut taxes, growth looks stronger. Unfortunately, when growth goes too quickly too soon, typically it also helps inflation in the sense of keeping inflation up rather than bringing it down.
By the way, another source of inflation that people have been talking about is all of Trump's proposed new tariffs, right? Yeah, no, that was interesting to me. Sanal actually didn't think Trump's tariffs were that big a part of why the Treasury yields moved.
For one thing, even though the U.S. obviously imports a lot of stuff, imports, you know, not that big a part of our economy.
Our GDP is so big, it's so enormous, that the amount we import and export is actually a very small fraction of the total. So I'm not saying that there is no impact.
I'm just saying it's not, to me, the main impact.

This isn't to say that tariffs are a good thing.

I don't want that to be the takeaway.

And also, Sanal isn't totally convinced that all of the promised tariffs are actually going to become a reality.

So the market, she says, is only pricing in some inflation from tariffs. OK, so the big Treasury sell-off is predicting inflation.

And the story behind that is potential tax cuts and maybe a little bit of tariffs. Okay, so the big treasury sell-off is predicting inflation.
And the story behind that is potential tax cuts and maybe a little bit of tariffs. Exactly.
So now we are going to turn to the second related but kind of different prediction, which is about where the market thinks interest rates will go under Trump. They're like cousins, you know, interest rates, inflation.
Yeah, you can tell that they're related, but they're different and they lead different lives. Anyway, the simplest version of the sell-off story is that markets think interest rates, cousin number two, will be high under a Trump presidency.
Uh-huh. And if you think interest rates are going to go up, you're not going to want to hold on to your government IOUs anymore.
Right. Remember, the IOUs, they pay interest.
And so if I have an IOU that's paying me 5% interest, but I think next month the government is going to start selling IOUs that pay 10% interest, I am not going to want to hold on to my 5% interest IOU anymore, right? I want to sell it so I can have my money ready to buy the sweet 10% interest IOU that's coming down the pike. So I guess the interesting question is why the market thought interest rates are going to go up.
Sanal says on this one, she thinks the markets were mostly reacting to the possibility of big budget deficits that could come as a result of all of those tax cuts Trump has proposed. Both candidates were talking about what I can only consider profligate fiscal policy.
So like lots of government spending. And it's worth saying that treasuries have actually been selling off little by little for weeks.
But then when it became clear that Trump would be president, we had that giant drop in bond prices. Sanal says that is partly because deficits under Trump are projected to be even bigger than they would have been under Kamala Harris.
We had three and a half trillion dollars from the Democrats, and we have conservatively seven and a half trillion from the Republicans. You know, a trillion here, a trillion there.
Pretty soon you're talking about real money here, you know, because we're already running very, very large fiscal deficits. And if you need to borrow more money, it's going to cost you more.
Sinhal says this is just the law of supply and demand, right? There are already trillions and trillions of dollars worth of U.S. treasuries out there in the world.
And if the U.S. is going to pump out all of these additional treasuries to pay its debts, we might at some point start to outpace the market's demand for all those treasuries.
If you have unlimited demand, it's cool. You can charge what you want to charge.
But if you increase the supply and you haven't done too much on the side of demand, well, you know, the price is going to have to come down or the interest rate is going to have to go up. We're going to have to start offering 10% IOUs instead of like 5% IOUs.
I mean, hopefully neither of those because both of those rates would be really high. But in any event, yes, higher rates.
Okay. So on Wednesday, all at once, the Treasury market made this new prediction about what the economy will look like under a Trump presidency.
Yeah, higher inflation and higher interest rates. But these predictions change all the time.
It's true. Every day, another new prediction.
Yeah, we are recording this podcast on Friday afternoon. Prices for treasuries, they are still lower than they were on Tuesday, but they have already come back a lot since that giant sell-off on Wednesday.
Also, soybean futures seem to have recovered. I guess we'll just check again on Monday to see what the markets think about any of this stuff then.
Or check the week after that or the week after that. Who knows? Yeah.
And I think that's kind of one important thing to keep in mind as we've been doing all this market watching on today's show.

The market, it's not omniscient.

Markets change their minds all the time. They don't actually know what's going to happen in the future.
They're just making educated and sometimes not so educated bets. but by watching how the markets place their bets you can at least learn a little bit

about what the people with money think is going to happen. And that's worth something.
This episode was produced by Sam Yellowhorse Kessler and Willa Rubin and edited by Martina Castro.

It was engineered by Gilly Moon and fact-checked by Sierra Juarez.

Alex Goldmark is our executive producer.

I'm Jeff Guo.

I'm Erica Beres.

I'm Sally Helm.

And I'm Keith Romer.

This is NPR.

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