"Trump Put Options" Fail? Wall Street's Confidence in Market Bottom is Eroding

After the sharp decline in the US stock market yesterday, the "Trump put" — the assumption that a market downturn would force the Trump administration to adjust its policies — seems to be failing.

Investors once believed that if the market reacted violently, Trump would ultimately abandon his most severe tariff threats and federal spending cut plans, but as market turmoil intensified, that expectation has been shattered.

UBS pointed out in a report to clients: “The market is questioning whether the Trump administration will adjust its policies based on stock market fluctuations or concerns about economic growth.”

Alex Kosoglyadov, head of global equity derivatives at Nomura, also stated that at the end of February, the market speculated whether Trump would slow down the pace of tariffs and federal spending cuts, but in recent trading days, market sentiment has shifted:

“It is clear that Trump's 'put option' either does not exist or the trigger point is lower than people expected.”

The "Trump put" fails, government "ignores" market decline

During Trump's first term, financial market turmoil was widely seen as an important "guardrail" that forced him to change policies deemed harmful to US economic growth by investors, at least in the short term.

A trading head at a Wall Street bank stated:

“Everyone thought the only way he would abandon policies is through a stock market crash. But what people don’t see is that if the stock market falls, he will change his rhetoric.”

Meanwhile, the White House seems to show an indifferent attitude towards market turmoil. A White House official stated:

“We see a clear divergence between the optimism in the stock market and the actual performance of businesses and business leaders, the latter of which is clearly more important and determines the medium to long-term outlook for the economy.”

Senior officials in the Trump administration have consistently downplayed concerns about the stock market. US Treasury Secretary Scott Bessent's comments over the weekend heightened investor worries, as he seemed to deny that Trump would retract some economic policies if the stock market continued to decline. He stated:

“There is no put option.”

“Trump's view is that if we have good policies, then the market will go up.”

Bessent also stated that the US economy may need a "detox period" to reduce reliance on government spending. He believes:

“As we shift from public spending to private spending, there will be a natural adjustment period. The market and the economy have become addicted. We have become addicted to this government spending. We will go through a detox period.”

Under the risk of stagflation, the US stock market faces severe tests

Stifel's chief equity strategist Barry Bannister believes that for Trump, “time is the only constraint.” He pointed out that the first year of any new administration is a time for “breaking some eggs to make an omelet,” and the goal of the Trump administration is to comprehensively reform the economic order But he added that as Trump imposes tariffs on America's largest trading partners, the risks of economic growth slowing and inflation rising—i.e., stagflation—are increasing, which puts the U.S. stock market under a "squeeze," meaning that earnings per share may slow and price-to-earnings ratios may decline.

Shep Perkins, Chief Investment Officer of Putnam Investments, stated:

"Does Trump have the ability to endure serious pain? That is an open question."

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