Amid rising economic uncertainty, the “trump bump” in stock is declining

The stock market sparkled in late February after President Trump's election, and investors were left unsettled by the new administration's early economic policy priorities and low consumer sentiment.

Stocks rose to a new high shortly after Trump's victory as traders prepared for lighter regulations and tax cuts. However, the rally has been suspended for several weeks as anxiety about the impact of new tariffs' inflation began to rise. This week's tech stock slump also weighed across a wide range of markets.

By noon on Friday, the S&P 500, which had recently hit a record on February 19, was on track for the worst week of the year, falling by around 2%. The index has dropped by around 2.5% that month, but has risen slightly this year.

Pullback began in part with new concerns about the inflationary effects of the wiped out tariffs, which Trump said was already imposing on China and would expand to Canada and Mexico next week. In the second half of 2024, investors were hoping the Federal Reserve would cut interest rates several times this year. This is a positive move for stocks and the economy, but the view has changed rapidly amid concerns that inflation will remain longer than expected. The concerns have had a wider impact on the economy as interest rates are set to continue to rise.

Recent economic research showing a sharp decline in consumer sentiment has also paid attention among investors due to pessimism about employment outlook and expectations that prices could start to rise again.

“The markets showed great enthusiasm in the election, and were based on the possibility of favorable taxation, a lighter regulatory environment and general enthusiasm,” said Steve Sosnick, Chief Strategist of Interactive Brokers. “The problem is that these expectations were a little ahead of reality.”

Here's something else you need to know about recent retreats.

Concerns about the economic outlook are also evident in other markets. Financial yields for the 10th year fell to 4.24% on Friday, the lowest level since December. Oil prices also fell on Friday, with Brent crude falling more than 1%, down more than $73 a barrel, trading close to its lowest level since late 2024.

Excitement about the outlook for artificial intelligence has fueled tech stock gatherings over the past year, but investors' expectations may have grown too far. Chipmaker Nvidia released its quarterly results on Wednesday. Nvidia's shares fell more than 9% this week, bringing down the high-tech Nasdaq.

The NASDAQ was about 3.8% lower for that month, the largest monthly decline since last April.

Tesla stood out in February, falling nearly 30% for nearly a month after a 14% decline this week. This week's losses were part of a response to Tesla's sharp decline in sales in Europe. More widely, the company led by Elon Musk last month reported a sharp decline in profits in 2024. Musk's role in the Trump administration has suspended investors about his priorities.

Cryptocurrency slides are also the weight of stock. Bitcoin, which rose to a $100,000 milestone in December, has traded nearly $80,000, down more than 20% from last month's high. This decline has happened as Bitcoin has fallen, with stocks in companies like Coinbase and MicroStrategy, despite the Trump administration guiding on a lighter regulatory approach to cryptocurrency.

But despite the weight on the overall index this week, some analysts remain bullish on the long-term outlook, with the S&P 500 approaching record highs, and the Wall Street mood is nowhere near stone. Investor sentiment “can change with the dime,” Sosnick said.

It remains to be seen how much Trump's economic policies will weigh in the stock market.

“We are pleased to announce that David Lefkowitz, Americas Head of Equity at UBS Global Wealth Management,” said: “However, I don't think ultimately the Trump administration will take steps to have a long-term negative impact on economic growth and inflation.”