US market optimism is at its 21st century peak. Even renowned bear Nouriel Roubini says there are few convincing alternatives to US stocks.
The S&P 500 rose 24 percent in 2024. Spurred by the “Magnificent 7” tech companies capitalising on AI excitement, the US far outperformed international competitors.
Trump’s November election victory accelerated that optimism. Promises of deregulation and tax cuts titillate free-marketeers. As Argonaut Capital’s Barry Norris says:
Capital goes where it’s needed and stays where it’s treated well. That’s not the UK and that’s not Europe: currently, it’s the US and it’s Argentina.
But US economic policy is not as cut and dry as Argentina. That’s been obscured by lazy mainstream media labelling all disruptive politics as “far-right” or “populist”. It’s a fatuous categorisation which lumps in Javier Milei’s anarcho-capitalism with Marine Le Pen’s economic nationalism.
FREE MARKET VS PATERNALISM
And Trump’s own economic agenda falls somewhere in between. His avowed protectionism is at odds with Adam Smith’s comparative advantage so loved by economic liberals. Nor do his blue-collar devotees hold much love for rehashed Reaganism.
Trump presides over an awkward coalition of libertarians and interventionists. The first fissures in that big tent following were exposed last week. And it somewhat qualifies unbridled euphoria over US stocks.
H-1B VISA TENSION
The recent spat concerns immigration. Trump appointed entrepreneur Sriram Krishnan as an advisor on AI. Sleuths were quick to bring up Krishnan’s old tweets supporting the removal of green card caps for foreign workers. That liberalisation is supported by Trump’s so-called co-president Elon Musk, particularly as it pertains to the H-1B visa program, which grants work permits to foreign workers in specialised fields. Musk’s co-head of the Department of Government Efficiency (DOGE) Vivek Ramaswamy wrote a 400 word post emphasising his own support for the visa initiative, saying it was a vital contributor to the American culture of “excellence”.
This divide over immigration highlights disparate philosophies in the MAGA camp. Musk and Ramaswamy represent the free-market libertarian wing. Critics such as Steve Bannon and influential social media commentator Mike Cernovich represent nationalist voices. They support a more paternalistic state that advocates for culture as much as economics.
DOGE AND DEI
MAGA is united in defeating the “woke mind virus”, which supporters believe is pernicious and widespread amongst government apparatchiks. Wasteful DEI programs can happily be thrown on the bonfire. But the more zealous aims of DOGE promise tension in the camp. Musk and Ramaswamy believe in drastic spending cuts. They see the ballooning national debt as an urgent problem. Just like X, the government must be severely trimmed and turned into a leaner, more efficient machine.
CULTURE VS ECONOMICS
Fewer people need to work harder. “Hustle and grind” culture, as Cernovich pejoratively calls it. And if Americans won’t do that, foreign workers are needed. That vision of a society aggressively pursuing growth sits awkwardly with culture warriors who hark back to better times. They idealise the 1950s as a golden era when men could return from work, clock off and spend time with their large families.
To this ilk, American exceptionalism owes as much to cultural hegemony as economic. America is a nation of God-fearing Christian family units. Immigration threatens this, even if it’s just for high-paying, specialised jobs.
Republicans no longer instinctively side with business over government. Increasingly they believe the government should hold businesses accountable for wider societal effects.
HOLDING BUSINESS TO ACCOUNT
Consider Ron deSantis’ legal battle with Disney over its CEO’s criticism of state educational reforms to restrict discussions of sexuality in classrooms. Republicans are not content to let the free-market rule and allow companies to preside over their own ruin under “go woke, go broke”. Or JD Vance’s criticism of negative externalities, using the example of a US train disaster to criticise companies for privatising gains and socialising costs.
AI REGULATION
And what about the prospects of the AI revolution that has been so influential in recent US market exceptionalism? The presence of Musk and other supportive tech bros has bred assumptions that Trump’s presidency will only benefit this nascent industry. But Trump knows automation prospects are unpopular with his blue-collar voters. He recently supported unions in their fight against new technology at shipyards, saying automation is not worth “the distress, hurt, and harm” caused to dockworkers.
DEREGULATION VS AMERICA FIRST
The H-1B visa clash is symbolic of this wider MAGA schism. Liberalisers pursue traditionally Republican pro-business policies. Government should aid corporations in hiring the best and brightest wherever they may be from. Interventionists favour a muscular state that steps in to protect cultural priorities.
INFLATION & STOCK MARKET
Commentators erroneously predicted a close election because they didn’t appreciate Americans’ pessimistic perceptions around the economy. A booming stock market means little when voters feel inflation is out of control and foreigners are taking their jobs.
GROWTH VS WIDER CONCERNS
The Vance wing of Trump’s new coalition understands these feelings are important. Politics of envy may be distasteful but it exists. Rising inequality is not fine as long as everyone is getting richer. Republicans have built a winning coalition because they grasp the fallacy of economic determinism. As Janan Ganesh argues:
Conservatives have been quicker to intuit that stranger forces than material interest are at work in the world, and to master them.
None of which means Trump will be a disinterested observer of the S&P 500’s performance in 2025. His ego will demand strong numbers to justify his claims of economic mastery. But he will be caught between factions with different priorities.
Investors should beware that a gangbusters stock market is not the raison d’etre of Trump 2.0.
