Does Trump still consider the US stock market as a KPI?

After Trump's return to politics, there seems to be a shift in the focus of his economic policies.

Unlike the frequent boasting of stock market gains during the 1.0 era, this time he rarely mentions the stock market and instead focuses more on lowering long-term bond yields.

This change raises questions: Has the priority of the stock market, once regarded as a benchmark by the Trump administration and even seen as a "KPI," diminished? Are various uncertain policies shaking market confidence?

Speculation on Trump's "New KPI": No Longer Just About the Stock Market?

Louis-Vincent Gave, founder of the well-known Hong Kong-based research institution Gavekal Research, believes in discussions with Bank of America Merrill Lynch that the policy priority of Trump 2.0 has shifted to maintaining low long-term bond yields.

Gave supports his viewpoint with comments from U.S. Treasury Secretary Scott Bessent and Elon Musk in interviews:

"U.S. Treasury Secretary Scott Bessent and Elon Musk both mentioned in different interviews that the top priority of the Trump administration is to ensure that long-term bond yields do not rise."

Policy Uncertainty and Trust Crisis

Bank of America analyst Claudio Irigoyen believes that the uncertainty of Trump 2.0 is shaking market confidence.

Irigoyen refers to the economic policies of the Trump 2.0 era as a "game changer," arguing that threats of tariffs, tightened immigration, high fiscal deficits, public sector reforms, and diplomatic adjustments create a fog that makes it difficult for the market to assess their impact on economic activity and inflation, with opinions divided on whether the Federal Reserve should raise or lower interest rates.

Irigoyen wrote in his report:

"As expected, this divergence is beginning to affect the stock market."

The Bank of America analyst continues to cite weak macro data to support the "chaotic narrative":

After last week's Michigan survey showed rising inflation expectations, this week the consumer confidence index and the February PMI preview both saw significant declines...

Business surveys found that the uncertainty of U.S. government policy measures, with tariffs being seen as a major reason for rising manufacturing prices.

Interestingly, when we categorize the overall decline in PMI, we find that the service sector has significantly decreased while manufacturing has increased, which may indicate a rebalancing of the consumption basket and expectations of tariff increases.

However, we need to be cautious about soft data. During the 2022-23 period, the confidence index has been declining, while consumption has unexpectedly risen.

Nevertheless, the U.S. stock market has not collapsed. Irigoyen analyzes that the market believes Trump will not allow policies to harm U.S. businesses and the stock market, and that his protectionist measures may be "loud thunder but little rain," with enforcement weaker than expected.

Irigoyen believes that **this "Trump bullish option" supports the divergence between asset prices and macro data. However, if subsequent policies deviate from being "market-friendly" and fall short of market expectations, trust may collapse, and the market may face a "trust crisis."**

Nomura's "Mild Recession" Theory

While analysts at Bank of America are confused by Trump's policies, Nomura analyst Charlie McElligott has put forward an interesting viewpoint—Trump may intentionally reshape the economy through a "mild recession."

The specifics were mentioned in a previous article, and to summarize, McElligott believes that Trump aims to propose cuts in government spending and employment, as well as increase tariffs, to break the U.S. economy's reliance on the public sector and stimulate the vitality of the private sector.

In the short term, this may trigger economic pain; in the long term, it could lower interest rates and weaken the dollar, paving the way for growth.

To summarize the viewpoints from three reports, it seems that during the Trump 2.0 era, the focus is no longer solely on the stock market, but rather on low yields and the transformation of the economic structure. Although the market has the "Trump bullish options" as a "safety net" to maintain stability, uncertainty and the prospect of a "mild recession" are bringing volatility risks to the U.S. stock market