Stock market under the Trump administration

President Donald Trump began his second term with a clear push to promote domestic manufacturing while extending key elements of the 2017 Tax Cuts and Jobs Act. That shift put investors on alert because trade announcements arrived quickly and often changed the near-term outlook. After the administration announced numerous tariffs culminating in the April 2, 2025 “Liberation Day” briefing, the S&P 500 fell nearly 20% in seven weeks, showing how fast uncertainty can move prices. ¹

Markets then shifted from reacting to each headline to evaluating what policies meant for growth, company profits, and inflation. With the S&P 500 still near all-time highs as we enter the second year of President Trump's second term, the conversation has moved toward whether this rally can continue. Investors are now balancing earnings optimism with practical questions about trade costs, government borrowing, and interest rates.

Markets rebound and leadership broadens

The rebound after the April 2025 low was both large and fast. After hitting its lowest point on April 8, the S&P 500 surged nearly 40% and remains near all-time highs, ¹ highlighting how quickly investors can reset sentiment when fears ease. “Since April, investors have overcome concerns that tariffs would negatively impact economic growth, earnings, and inflation,” notes Bill Merz, head of capital markets research for U.S. Bank Asset Management Group.

Investors also spread their interest across a wider set of stocks as 2026 began. Smaller company stocks have risen nearly 50% since last April’s lows, signaling that gains did not remain concentrated in only a few large companies. ¹ When more parts of the market participate, investors often interpret it as a sign that confidence extends beyond a narrow slice of the economy.

That shift toward wider participation can help markets seem more stable, even when headlines remain noisy. Short-term swings happen from time to time, but markets recover as uncertainty clears and long-term fundamentals reassert themselves. That perspective encourages investors to stay focused on a plan built around goals and comfort with risk, rather than reacting to every short-term market move.

Trade policy moved from broad tariffs to targeted negotiations

Investors adjusted as the administration shifted away from sweeping, sector-level tariffs toward targeted country-by-country deals. A pause on early broad tariffs eased immediate concerns and gave businesses time to adapt rather than freezing decisions. That extra time, paired with mid‑year tax changes and Federal Reserve rate cuts, helped rebuild investor confidence as corporate earnings held up.

Several major agreements helped define a more predictable tariff range. Deals with the European Union, Japan and South Korea set tariff rates at 15%, while other relationships remained unresolved, including a planned re-negotiation of the U.S.-Mexico-Canada Agreement. Tensions with China remain central, but a one‑year U.S.–China agreement in November provided temporary stability by reducing select U.S. tariffs and prompting China to resume key commodity purchases.

Even when markets look calm, tariff levels still influence pricing and profitability which investors continue to weigh in real time. The Yale Budget Lab projects levels may settle in the mid‑teens after accounting for buyers potentially substituting for higher priced goods. ² Legal uncertainty remains part of the story: a federal appeals court ruled the administration’s use of emergency powers unlawful, and the Supreme Court will make the final decision. A ruling that limits executive authority could push future policy through Congress or use other legal means which take more time, slowing the process.

Tax policy supports earnings expectations while fueling the deficit debate

In July, the President signed the One Big Beautiful Bill Act (OBBBA) into law, extending the 2017 tax cuts while adding new tax considerations and initiating spending reductions, particularly related to Medicaid. The Congressional Budget Office projects the law will expand federal debt by $3.4 trillion over the next decade, even as tax cuts boost corporate earnings by $100 billion in 2025 and raise consumer after-tax incomes by $127 billion in 2026. ³ Investors are watching that tradeoff closely because stronger after-tax income can support consumer and business spending, while higher projected debt can increase borrowing needs over time.

Company leaders have pointed to tax savings as a direct support for profitability, and capital spending plans rebounded alongside higher earnings growth expectations. At the same time, markets continue to track whether tariff revenues offset some deficit pressure and how future borrowing could influence interest rates. Those fiscal questions matter for stock investors because interest rates shape the cost of borrowing for households and businesses. When borrowing becomes cheaper, consumers and companies can sometimes spend and invest more freely, supporting growth. When borrowing becomes more expensive – or when investors worry it could – markets can reprice risk quickly.

Inflation cooled and the Fed cut rates, but policy uncertainty remains in focus

Some economists argue tariffs could create recurring inflation, yet recent anecdotes and economic data point to more modest pressures so far. The Federal Reserve's (Fed) Beige Book reports widespread tariff-induced input cost increases across manufacturing and retail, though companies vary in how much they pass through to consumers. ⁴ The Core Consumer Price Index (CPI), which excludes food and energy, rose 2.6% in December, down from 3.1% in August but it remains above the Fed’s 2% target – cooling, yet still influential for rate expectations. ⁵

The Fed reduced its policy rate by 0.75% over the final three meetings of 2025 and emphasized two-sided risks to inflation and employment. Investors expect two more cuts this year, ⁶ and Fed Chair Jerome Powell pointed to signs of labor market stabilization and argued the economic outlook has improved. When investors think rates may keep falling, they often reassess both borrowing conditions and the appeal of different types of investments.

Politics continue to overlap with monetary policy drawing investor attention. President Trump criticized Fed Chair Powell, even suggesting firing the Fed chair before his term expires in May 2026. The President later backed off that threat while continuing to criticize policymakers. ⁷ The President nominated Kevin Warsh, who served on the Fed board from 2006 to 2011, to succeed Powell as Fed Chair, and the Senate must confirm the nomination, adding another variable to the future path of interest rates.

What’s the significance of falling bond yields and slower hiring in 2026?

Despite persistent inflation, weaker labor markets have strengthened investors’ expectations for rate cuts, pushing longer-term yields lower. The U.S. economy added 50,000 jobs in December, yet monthly hiring slowed materially, averaging 12,000 from May through December versus 123,000 from January through April. ⁵ As rate cut expectations strengthened, 10-year Treasury yields moved down from a peak near 4.8% in January 2025 to closer to 4.3%, reflecting changing views on growth and policy. ⁸

Lower yields can help borrowers by reducing financing costs, but they can also reflect more cautious growth expectations. This is where stocks and bonds often speak to each other: falling yields can support the economy, yet they can also hint that investors see slower momentum ahead. In that context, investors often watch the bond market for clues about what markets expect next, not just what happened last.

“Longer-term bond yields fairly reflect Fed policy rate and inflation expectations and remain consistent with the outlook for nominal growth,” says Merz. “Lower bond yields act as a modest tailwind for consumer and corporate borrowers through cheaper funding costs for now.” Fed policy often influences shorter term yields while growth, inflation expectations, and supply dynamics shape longer term yields. Those links help explain why investors track yields alongside inflation and jobs, especially when policy direction is shifting.

Government funding deadlines and geopolitics

Investors are monitoring Washington’s budget calendar, because funding deadlines can affect confidence and risk appetite. Lawmakers provided full fiscal-year funding for some programs through September 30, but funded other government agencies only through January 30, and the government partially shut down for four days through February 3. The recent spending bill funds most of the rest of the government through the current fiscal year, but Department of Homeland Security funding ends February 13^th, keeping negotiations in focus.

Consumers also face pressure from expiring Affordable Care Act health insurance subsidies, even as the budget deal funds some sensitive programs that account for about 10% of the government budget. For markets, these moments often matter less as “events” and more as signals about stability and the willingness to reduce uncertainty. When uncertainty drops, businesses and households regain confidence to make longer-term decisions, which can support growth over time.

Geopolitical conflict also remains part of the headline mix. The U.S. military conducted a large-scale strike against Venezuela, capturing Nicolas Maduro and his wife and bringing them to the U.S. to face criminal charges for narco-terrorism conspiracy. Despite the dramatic development, markets opened with little disruption, and oil prices remained subdued amid the prospect of expanded production and a well-supplied global market. That reaction reinforces a recurring pattern: markets can absorb dramatic news quickly when underlying economic conditions and supply dynamics remain steady.

What it all means for investors

This market environment blends supportive fundamentals with moving policy pieces, including tariffs, taxes, and interest rates. That foundation helps explain why markets have pushed toward highs even as policy details remain in flux. Because those forces can shift quickly, investors may see periods of short-term volatility even when the longer-term trend remains constructive.

Declines and recoveries are part of normal market rhythm. A practical investment strategy starts with staying anchored to a plan designed around goals and liquidity needs, especially when headlines compete for attention. It also helps to focus on what can be observed—earnings trends, inflation progress, job data, and the direction of interest rates—rather than trying to predict every market turn.

If you have questions about the economy, markets, or your financial plan, your U.S. Bank Wealth Management team is here to help.

FAQs

How has the stock market performed since the election?

Since 2024’s election day (November 5, 2024), the S&P 500’s total return climbed 20.9% as of February 4, 2026, despite periods of significant volatility. ¹ Investors responded to the election outcome and President Trump’s policies, but other factors also influenced the market. The Federal Reserve cut short-term interest rates in late 2024 and late 2025, which stock investors generally welcomed. The U.S. economy remained strong, and the labor market stayed resilient, allowing consumers to keep spending at elevated levels. This strength fueled corporate profit growth, a key driver for stocks. In 2025, proposed policy changes and executive orders—especially around tariffs—created uncertainty, which increased volatility and temporarily slowed equity market gains. By May 2025, markets recovered most losses, and beginning in July 2025, the S&P 500 repeatedly reached new all-time highs.

What are the key drivers of stock market performance in today’s environment?

Investors weigh several factors when assessing the market. Federal government policy, especially presidential actions, can play a major role. In 2023 and 2024, robust U.S. economic growth buoyed stock prices, with S&P 500 annual total returns exceeding 25%. In 2025, the S&P 500 generated a total return just shy of 18%. ¹ Consumer spending powers the economy and boosts corporate profits. Today, investors also evaluate the economic impact of President Trump’s policies, including broader tariffs and new legislative provisions from Congress.

How does the stock market’s performance compare to other Presidential terms?

Shifting trade policies and fluctuating tariffs triggered volatility in the early months of President Trump’s second term, though markets since recovered. In 2025, the S&P 500 generated a total return of 17.9%. During the primary years of former President Biden’s four-year term (2021-2024), the S&P 500 generated a 57.8% total return. Trump’s first term (2017-2020) saw an 81.4% total return. Since 1980, Trump’s first term ranks fourth for investor returns over a four-year presidential term. The top three terms were: Ronald Reagan (1985-1988, 91.8%) Bill Clinton (1993-1997, +88.6%), and Clinton again (1997-2000, +88.6%). ¹