Investors fear that market turmoil will no longer rein in Trump

Good morning. High-stakes talks between the US and Ukraine are under way in Saudi Arabia. We’ll have further updates on the meeting later in the day but for now, let’s get into:

After yesterday’s brutal stock market sell-off, investors are scared that Donald Trump has a higher tolerance for market slides than he used to. 

Wall Street had been hoping that potential negative effects on financial markets would restrain the president’s tariffs and spending cuts, but it’s not looking that way. During his first term, market turmoil was widely seen as a key guardrail forcing Trump to reverse course on policies that could harm US economic growth in the short term.

“Everyone thought the only way he backs off is if the stock market plummets,” said one trading executive at a Wall Street bank. “What people didn’t see was he’d change his narrative if the stock market plummets.”

On Sunday, Trump declined to rule out a recession or a rise in inflation as he dismissed business concerns over his protectionist trade policies, which have raised alarm bells among many economists.

Although global markets have steadied this morning, the S&P 500 lost 2.7 per cent yesterday, after falling 3.1 per cent last week in its worst weekly performance in six months. The tech-focused Nasdaq Composite sank 4 per cent, its worst day in two-and-a-half years.

After markets closed on Monday, the White House doubled down on its dismissal of the turmoil.

“We’re seeing a strong divergence between animal spirits of the stock market and what we’re actually seeing unfold from businesses and business leaders, and the latter is obviously more meaningful than the former on what’s in store for the economy in the medium to long term,” a White House official said. 

This will have done little for a skittish Wall Street.

“In the last couple of trading days, sentiment turned,” said Alex Kosoglyadov, head of global equity derivatives at Nomura. “There’s been a re-rating of what the downside could look like.”

The latest headlines

What we’re hearing

Meet Stanley Druckenmiller: the revered Wall Street veteran with two protégés firmly planted in Trump’s inner circle. 

Through Treasury secretary Scott Bessent and Kevin Warsh, a leading contender to be the next US Federal Reserve chair, Druckenmiller’s economic policy views are suddenly very significant.

The billionaire founded Duquesne Capital Management — now a family office — and worked alongside George Soros to short the British pound in 1992. He hasn’t had a down year in three decades, according to people familiar with his returns.

Druckenmiller remains in close touch with Bessent and Warsh, people familiar with the matter told the FT’s Amelia Pollard, James Fontanella-Khan and Alex Rogers. He’s mentored dozens of investors, but is exceptionally close to Bessent and Warsh, with some describing their ties as similar to father-son relationships.

Bessent and Warsh embody the way Druckenmiller interprets markets and economic policy, according to people familiar with their discussions. The pair echo “Stan’s language” to relay their own positions.

“In macro, there’s Stan and then there’s everybody else,” Bessent told the FT, adding that Druckenmiller stood apart from the pack “in terms of performance, in terms of reverence and in terms of analysis”.

Though Druckenmiller is a Republican donor, he didn’t give to Trump’s campaign and in October described the then-candidate as a “blowhard”. 

Since then, Trump has torn up the norms of international finance that have buoyed macro traders like Druckenmiller, upending global trade through on-and-off-again tariffs, discarding anti-bribery rules and trending towards protectionism.

But the investing magnate has a direct line to the administration’s most important economic thinkers.

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