For the better part of a decade, Donald Trump has tied his political fortunes to U.S. stocks...
A count by CNBC revealed the president had tweeted about stocks at least 60 times in the first year of his first term. Trump has mentioned stock market performance much more often than previous presidents. And he hasn't slowed down since then...
Heck, in January 2024, stocks reached all-time highs with Joe Biden in office – and Trump still took credit for it. He posted to social-media site Truth Social at the time...
Posts like this make one thing clear: Trump wants to win the approval of investors. That's why the stock market has always been key to understanding his presidency.
Trump has used the S&P 500 Index as an unofficial approval rating from the very start. But now, that may be changing...
This month, it looks like Trump's White House is turning to a new key metric. And that could lead to a rude awakening for all-stock investors.
Stocks may officially be on the White House policy backburner...
At least, that's what Treasury Secretary Scott Bessent signaled this month in an interview with Fox Business.
Bessent remarked that he and Trump were in talks to lower the yield of 10-year Treasury bonds. "The president wants lower rates... He and I are focused on the 10-year Treasury and what is the yield of that."
The 10-year Treasury rate is an important measure. It shows bond traders' expectations for the cost to finance debt over the next 10 years. When this rate is high, traders see riskier times ahead... And they expect a higher cost of doing business. The opposite is true when the rate is low.
But the 10-year Treasury yield also determines the cost of doing business right now. The 30-year mortgage rate closely tracks this yield. So a high 10-year Treasury rate makes it more difficult for Americans to buy homes.
It also makes it more difficult for Uncle Sam to pay off America's ballooning debt.
Today, the 10-year Treasury rate is very high relative to the past 10 years. We can see this using the CBOE 10-Year Treasury Note Yield Index. Take a look...
The 10-year Treasury yield is less than a percentage point off its recent high. And that's despite the Federal Reserve's cuts to short-term rates... which usually have at least some influence over longer-term rates.
That means Bessent and Trump will have to do something else to make these bonds attractive enough to bond buyers.
Bessent's plan includes lowering energy prices and slashing government spending. We'll have to wait and see if the gambit pays off.
But this shift in priorities sends a message that may be just as important...
Since 2016, Trump has made the stock market his unofficial approval rating. In his second term, we may well see a new metric of success: a falling 10-year yield.
That means the second Trump term may surprise investors who are banking on the same stock market tailwinds as last time.
The White House is getting ready to support bonds, not stocks. Investors should plan accordingly – especially if most of their wealth is in the S&P 500 today.
If that's you, don't panic. It's not time to rush out of stocks and into fixed income just yet. But the new "Trump Trade" may not be in the stock market... So consider adding U.S. bonds to your portfolio today.
Good investing,
Sean Michael Cummings
Further Reading
"The bond market loves all the proposed new policies coming out of the Trump administration," Corey McLaughlin writes. Right now, our bond expert sees troubling recessionary indicators. And that economic backdrop means the White House needs to walk a fine line today... Learn more here.
"Our economy always moves in cycles," Mike DiBiase writes. Today, most economists believe the Federal Reserve will accomplish something it has only achieved once in its 100-plus-year history. That simply isn't likely. But it means we'll see great moneymaking opportunities ahead in one corner of the bond market... Read more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
CME Group (CME)... derivatives
HSBC (HSBC)... British bank
Automatic Data Processing (ADP)... payroll giant
Axis Capital (AXS)... insurance
Brown & Brown (BRO)... insurance
Progressive (PGR)... property and casualty insurance
Berkshire Hathaway (BRK-B)... Warren Buffett's holding company
Welltower (WELL)... health care REIT
Abbott Laboratories (ABT)... health care giant
AT&T (T)... telecom
Gilead Sciences (GILD)... biotechnology
Yum Brands (YUM)... fast-food brands
O'Reilly Automotive (ORLY)... auto parts
UGI (UGI)... utilities
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The Trade Desk (TTD)... digital advertising
American Eagle Outfitters (AEO)... apparel
Terex (TEX)... manufacturing
Advanced Micro Devices (AMD)... semiconductors
Booz Allen Hamilton (BAH)... defense contractor
First Solar (FSLR)... solar energy
