After eagerly rejoicing at the election of Donald Musk in early November, the markets are starting to take the risks associated with Elon Trump more seriously.
By Alexis Bienvenu, Fund Manager and Olivier de Berranger, CEO and co-CIO
The S&P500 index of American stocks has therefore fallen by more than 3% (as of January 2, 2025) since December 16. As for Tesla shares, after soaring by more than 80% between the presidential election and December 16, they fell by 18%.
This sobering does not come only, it is true, from fears linked to the economic policy of the future president. It also has its source in the less accommodating attitude adopted by the American central bank. The Fed certainly lowered its key rate by 25 basis points at its meeting on December 18, but accompanied this gesture with a cautious speech concerning future rate cuts. There would only be two of these by the end of 2025, according to projections by the Board of Governors. Far from providing a prospect of rapid normalization of the key rate towards its long-term target, the Federal Reserve sees it settling at around 3.9% at the end of 2025, in part due to inflation expected in 2025 to be above of what was hoped for at the September meeting. The markets could not avoid reacting negatively.
But why is this inflation projection higher? To tell the truth, recent data on inflation do not clearly argue for particularly penalizing inflation in 2025. Several factors should, on the contrary, contribute to moderating it, in particular the lull in real estate prices, the gradual easing of the housing market. employment, or even the current moderation – expected to be lasting – in the price of oil. There is therefore reason to assume that this unfavorable revision of inflation expectations comes at least in part from assumptions about the future economic policy of the next president. Certainly, Jerome Powell, the head of the Fed, denies any speculation on this subject. But the simple fact that there is an upward risk on inflation in the presidential program cannot fail to interfere with monetary policy expectations. In this way, one of the worrying consequences of the Trumpian program may worry the market.
Other dark aspects of Trumpian power may have played a role in this sobering of the markets. This is particularly the case of the deep dissensions, now evident, which are affecting the presidential camp. They portend great instability in future policies. First episode of major tension in the Republican camp: the rejection on December 19 by the House of Representatives, although with a Republican majority, of a draft budget presented by Trump, explicitly controlled by Musk. This rejection has pushed the country to the brink of a federal government shutdown. Certainly, an amended version was adopted in the extremesat the cost of significant concessions on the most “Muskian” aspects of the budget. But that did not stop the party from its dislocation, which then manifested itself on the question of immigration. Some Trumpians have in fact called for banning the use of H-1B type visas, which aim to facilitate the immigration of foreigners with rare professional skills. This initiative triggered the ire of Elon Musk, who declared himself ready to go to war to protect their use, vital for the economy of innovation, while Steve Bannon, a historic Trumpian just released from prison , urged Elon Musk to “stay at the back of the class and sit down” while he properly mastered Trumpism.
These deep divisions could persist as long as Trump tries to juggle the interests of Silicon Valley billionaires and those of rednecks from the Midwest. The vote on crucial measures, in particular the budget, could thus encounter impasses, which the market cannot fail to sanction. Beware of parliamentary crashes aboard the Trumpian Tesla!
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The opinions mentioned are those of the manager. They cannot in any way engage the liability of LFDE.
