The Post-Election Bump Is Done As Harsh Realities Set In
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March 17, 2025
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Recent foreign policy moves on tariffs and executive actions by the Trump administration remind us that election outcomes do matter and they have real consequences – although they do not always play out in expected ways. Financial markets rejoiced in the weeks after Trump’s election victory, as did a near-majority of Americans who voted for him. “Trump trades” dominated the market action as investors positioned themselves to profit from a Trump economic agenda. So, what has happened to markets’ euphoria since late 2024, when a Trump agenda was widely seen as a huge win for American big business? While the administration is mostly doing what they said they would do, the S&P 500 has surrendered all its gains since the post-election surge and rally attempts in recent weeks consistently have failed as more economic developments and proposals come forth.
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Markets may favor political gridlock, but they hate uncertainty — and they have gotten a full dose of uncertainty these last few weeks, not just from unconventional economic policy proposals such as punitive tariffs, but also unpredictable reversals on the implementation, timing and extent of those measures. Proposed tariffs on Canada and Mexico have been postponed or scaled back twice prior to their original scheduled implementation, while retaliatory tariffs on EU countries remain under discussion. These are policy decisions with huge economic consequences hanging in the balance. Similarly, President Trump first insisted that the Federal Reserve lower interest rates, then agreed with their decision to leave rates unchanged, only to call for lower rates once again. This inconsistent Executive messaging frustrates markets and business decisionmakers, many of whom are holding off on spending, hiring and investment decisions until they have more clarity on these outcomes. Until then, it is an economic stalemate.
The enthusiasm that prevailed in those first weeks after the election has given way to growing concerns and anxiety among business leaders and many ordinary Americans who see things moving too fast and chaotically for their liking.
Efforts to reduce inefficiency and waste in the federal government are laudable goals and long overdue undertakings. DOGE’s activities, however, strike many observers as chaotic, problematic and possibly self-defeating — with real risks of losing institutional knowledge and talent. The suddenness and severity of planned budget and personnel cuts by DOGE at some federal agencies raises the possibility of operational dysfunction should these cuts be enacted as intended. And to date, measures taken to uncover waste, fraud and abuse and to find cost savings are not transparent and inconsistently applied, and the accuracy of statements about savings uncovered have been called into question.
So here we are at a seemingly pivotal moment. Many Americans are growing nervous about what they are seeing and hearing. Since late 2024, the two most prominent measures of consumer confidence are both on very different trajectories than they were in the same five-month period from October 2016 through February 2017, with the Consumer Confidence Index now falling for three consecutive months (Figure 1). Both indexes are at levels considerably lower than they were in the corresponding period during the first Trump term.
Figure 1: Consumer Confidence Index vs. Index of Consumer Sentiment
Source: Bloomberg, University of Michigan Survey of Consumers, and The Conference Board
Inflation is foremost on consumers’ minds and they believe that impending tariffs will be inflationary, as do most economists. Furthermore, any retaliatory tariffs by impacted countries could trigger trade wars that will slow the global economy. The term “stagflation” has recently resurfaced in business articles as a possible outcome of any tit-for-tat rounds of tariffs that lead to slower growth and higher inflation. Grassroots efforts to boycott American goods and travel are already underway in Canada. Both consumer confidence polls now anticipate a notable uptick in inflation in the year ahead, and it is worth noting that survey respondents were prescient in sensing higher inflation coming back in mid- to late-2020 (Figure 2).
Figure 2: Consumers’ Inflation Expectation: 1-Year Hence
Source: Bloomberg, University of Michigan Survey of Consumers, and The Conference Board
Restructuring Activity Will Benefit from the Trump Economic Agenda — at Least Initially
A harsh present reality seems indisputable: Much of the intended Trump economic agenda – or what we understand it to be now - likely will happen this year, and the painful phase will precede any intended benefits.1 In the near term, there is little to offset the negative and sizeable impacts of tariffs, higher inflation and federal budget cuts. Onshoring of domestic manufacturing will take many months and years to materialize, while some of the announced corporate onshoring initiatives may have short life spans if they materialize at all.2
Meanwhile, the immediate impacts and second-order effects on consumers and businesses from import tariffs, supply chain reworkings, federal job cuts, slashed federal program spending, and a “wait and see” posture from many large businesses will be felt sooner. This could have a material impact on the private sector. Small and mid-sized domestic businesses dependent on imported parts or products that are subject to tariffs may have little flexibility to raise prices or absorb these tariff hits. For instance, The National Restaurant Association has told President Trump that 25% tariffs on food and beverage products from Mexico and Canada would reduce profitability of the average small restaurant operator by 30%.3 Heavy job losses in the Washington, D.C., area could reverberate throughout that economic hub. Private businesses that are overly dependent on contracts with federal agencies that experience large budget cuts also will take a hit. Even the Department of Defense has outlined unprecedented budget cuts, which include civilian personnel and do not exclude many weapons systems.4 Some private contractors that have relied heavily on Defense Department business will be hit.
The current House Budget bill will require between $1.8 trillion to $2.0 trillion in total spending cuts over a decade in order to preserve the 2017 tax cuts — and even then spending will continue to add to annual budget deficits. It remains uncertain whether enough spending cuts and tariff revenue will be generated to enact additional tax relief beyond those in the expiring 2017 Tax Cuts and Jobs Act. Given the inflexibility of spending cuts to mandatory federal spending, it seems certain that Medicaid and other public assistance programs will bear the brunt of these cuts, even though Medicaid cuts are not specifically mentioned in the House bill, as there are few other places in the federal budget where such large spending cuts can come from. Private healthcare service providers with sizeable Medicaid patient bases almost certainly will be impacted if this plays out as many suspect it will, as will other businesses that depend on federal programs that are being slashed. Spending by lower- to middle-income Americans would be hit hardest, though overall consumer spending growth already is slowing in 2025 and seems especially vulnerable to further pullback. With all these elements in play, a forecast of continued uncertainty – and economic disruption - seems likely for the foreseeable future.
Footnotes:
1: Steven Martinez, “Here’s a Short Timeline of Foxconn’s Plans and Development in Wisconsin,” Milwaukee Journal Sentinel, November 10, 2023.
2: Dan Gallagher, “Apple’s $500 Billion U.S. Investment Is Mostly Already in the Books,” The Wall Street Journal, February 24, 2025.
3: Jonathan Maze, “National Restaurant Association: Tariffs Would be a $12B Hit to Restaurants,” Restaurant Business, February 25, 2025.
4: Jack Detsch, Joe Gould, Paul McLeary, Connor O’Brien, “Hegseth Orders Major Pentagon Spending Cuts,” Politico, February 15, 2025.
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March 17, 2025
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