What will be the difference between Trump 1 and Trump 2? That's the question all observers have been asking for months now. After a landslide election that gave him control of the entire Congress, and his first experience in the Oval Office, the now 47th President of the United States seems in a position to roll out his agenda. Most of the appointments made since November 5 tend in this direction. The candidates chosen are first and foremost loyal before being qualified for the job. Except for one. Treasury Secretary Scott Bessent, a hedge fund manager and therefore a connoisseur of the financial markets. This return of the "adults in the room" to a key position reflects one thing: President Trump's economic policy will be more pragmatic than that of candidate Trump.

We've known since 2016 that the level of equity indices counts for Donald Trump. We remember his tweets at every Dow Jones record (yes, the Dow Jones because he's a man of his generation). In addition to counting the records, he has turned them into a barometer of his action: stock market indices are peaking because his policies are a success. During the campaign, he even claimed that the markets were rising in anticipation of his return to business. A statement that drew a smile at the time. The market movements from early autumn onwards (the tipping of the polls in his favor) proved him right.

Keeping the markets on his side

If the markets were to fall too sharply as a result of a political decision, he would have to reverse course to stop the bleeding. This is the concept of the "presidential put". To keep the markets on his side, the president-elect will have to scale back his ambitions. Expelling millions of people from the country would be negative for growth and contribute to wage inflation. Widespread tariffs could also bring back inflation, so the weapon of tariffs is most likely to be used as a negotiating posture.

Finally, on the fiscal front, with the deficit at 7%, there is no room for maneuver. In 2016, the bond market was able to absorb the widening deficit due to tax cuts, which mostly boosted the S&P 500 (an IS rate that goes from 35% to 21% is a little more than the thickness of the line for earnings per share). This time, major tax cuts would send the US 10-year yield to 5% or even higher, a painful level for equity markets. It therefore seems difficult to do more than renew the TCJA (Tax Cuts and Jobs Act, the tax cut plan voted in 2017), which expires in 2025.

Wealth effect

The level of equity markets is not neutral on the US economy. American citizens are highly exposed to the financial markets, via pension funds in particular. When stocks rise, their wealth increases and they are more inclined to spend. This is the wealth effect. This effect partly explains the impressive pace of growth (around 2.5% in 2023 and 2024); what some call American exceptionalism.

In this economy of full employment, consumers have an income and the value of their assets is rising. As a result, savings are low and spending continues unabashed. Consumption drives growth, since it accounts for 60-70% of GDP. Breaking the markets' momentum means running the risk of breaking the consumer's momentum. So there should indeed be a presidential put. It remains to be seen what the strike price will be.