King of chaos: Wall Street is losing faith in Donald Trump

The Wall Street honeymoon Donald Trump experienced in the initial months since his election victory appears to be ending, with the sharemarket sliding, bond yields falling, cryptocurrencies tumbling and consumer confidence evaporating.

Until a week ago, the US sharemarket was up 7.6 per cent from its level immediately before the November election. It has since fallen 3 per cent. The “Magnificent Seven” big technology stocks have fallen more than 6.5 per cent in the past week. Included in this group is Elon Musk’s Tesla, which is down 16 per cent over the period and is now worth about $US570 billion ($900 billion) less than it was about two months ago as the carmaker pays a heavy price for its association with its founder.

It’s also becoming apparent that the “savings” Elon Musk is claiming from his federal government overhaul are grossly overstated.Credit: AP

Bitcoin, having soared 56 per cent in the post-election period, has lost 11 per cent of its value since last Friday.

The yields on Treasury bonds have also dropped – the yield on the benchmark 10-year bonds is down from 4.55 per cent a week ago to 4.32 per cent.

The sudden loss of what had seemed significant momentum within the markets appears tied to the difference between the expectation Wall Street investors and US consumers had of the Trump administration and its reality.

They expected deregulation, tax cuts and smaller government and were dismissive of the prospect that Trump would follow through with his campaign promise of a universal tariff and a 60 per cent tariff on China’s exports to the US.

Instead, they have got chaos. Trump announces new and different tariffs almost on a daily basis, while Musk’s rampage through the government’s agencies is running into roadblocks in the courts and pushback from the agencies and even from some of their Trump-appointed leaders.

Trump announced, paused and now says he will proceed with tariffs on imports from America’s two major trading partners, Mexico and Canada.

He has also imposed an extra 10 per cent duty on imports from China, removed (and paused) a tariff on low-value goods, imposed a 25 per cent tariff on imports of steel and aluminium (and says copper is next in line) and foreshadowed “reciprocal” tariffs on all countries the US trades with.

While Trump is trying to upend global trade and undermine global growth, it’s also becoming apparent that the “savings” Musk is claiming are grossly overstated and, in any event, are inconsequential when set against the scale of government spending.

He and his youthful acolytes are sowing confusion and dysfunction within the agencies even as other Trump appointees, such as defence secretary Pete Hegseth or health secretary Robert F Kennedy Jnr, are only just starting to contribute to that cause.

Donald Trump is starting to rattle Wall Street. Credit: AP

It’s little wonder then, that Wall Street is becoming unsettled, or that consumers are becoming fearful.

The Conference Board consumer confidence survey, issued on Tuesday, showed US consumer confidence has fallen more this month than at any time in the past three and a half years. The board’s index fell 7 points in the February survey, the third straight monthly decline.

Consumers are pessimistic about labour market conditions as well as the outlook for their finances and business conditions. There’s a growing proportion who expect a recession within the next year.

It’s the mix of tariffs and the mass firings (or attempted firings) of government employees that appears to be unsettling consumers. Separate surveys have shown their expectations of inflation are at their highest levels in nearly 30 years.

It’s probably not helping consumer confidence that the House Republicans in Congress are trying to pull together a “big, beautiful bill” (which is how their leaders describe it) that would slash $US2 trillion ($3.2 trillion) from government spending, including big cuts to social welfare and medicare programs – to partly fund Trump’s $US4.5 trillion of tax cuts for the wealthy.

Trump’s Treasury secretary, Scott Bessent, has said his economic plan is to cut the US budget deficit from 6.4 per cent of gross domestic product to 3 per cent, lift GDP growth (2.8 per cent last year, but fading) to 3 per cent and increase oil and gas production (which is already at record levels) by 3 per cent.

He has also said that the administration’s focus would be on lowering the 10-year bond rate, which influences all interest rates within the US economy, including the cost of government debt.

The US inflation rate has proven stubborn; indeed it rose slightly last month. The Federal Reserve Board is therefore sitting on its hands, not expecting to lower rates again until the second half of the year, if at all.

Trump’s tariffs and his immigration policy – deporting millions of undocumented immigrants – are inherently inflationary.

It’s that growing fear that ... the administration might bungle its way into recession which seems to be unsettling Wall Street.

Despite what he says, and may believe, tariffs are paid on goods once they have landed within the US and by the importer, not the exporter. Most of their cost is then either absorbed by the importing company, lowering profits, or passed onto consumers, increasing prices and inflation.

Fewer lowest income workers inevitably means higher labour costs, and more inflation, although Trump’s promise to round up and deport illegal immigrants in their millions appears to be proving easier said than done, despite the massive level of resources the administration has assigned to the effort.

Investors in the US and consumers are reacting rationally to the prospect of more inflation and less growth than they foresaw last year in the immediate aftermath of the election.

There is a possibility that, instead of the high-growth, low-inflation, lower interest rate environment Bessent is targeting, the US ends up with a low-growth economy but one with still-high inflation and interest rates – stagflation – because of Trump’s policies.

It’s that growing fear that, rather than the bonanza that investors and the big tech and energy companies that supported Trump had envisaged, the administration might bungle its way into recession, which seems to be unsettling Wall Street.

The erratic nature of the administration and the eccentric (to be polite) nature of some of those Trump has appointed to lead key agencies is contributing to the sense that America is deliberately destabilising (if not quite destroying) itself, along with much of the rest of the world.

Trump and his advisers believe they are dismantling the “Deep State” and a parasitic world order but, even if they were more effective in executing their plans than they have been to date, America would emerge diminished by the effort, with the geopolitical landscape tilted heavily towards China.

That’s not what Trump intended or what Wall Street expected.

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