The Trump put

Long ago (Friday) and far away (Tehran) came news the Hormuz thingy was open again.

Stocks went nuts. The mighty S&P 500 shot ahead yet again to close above 7,100 for the first time. In fact last week alone, the index surged 4.5%. The Dow romped as well, hitting a gain of 1,100 points before closing slightly lower and within spitting distance of its vaunted 50,000 level. Oil prices crashed about 10% in a single day. The US dollar gained. Bond yield fell. It was party time on Wall Street, with the adrenalin also spraying Bay.

In fact, take a look at what the main US equity index has done since touching a war-time bottom at the end of March.

Alas, that was then. Two long days ago. This is now.

The US-Iran ceasefire is running out. Trump’s hasty blockade of Iranian ports led to the Strait being shut down again. Two ships were fired upon. Australia is rationing fuel and telling people to stay home. Air Canada is cutting routes because it’s running out of gas. Starting tomorrow Ottawa is nixing its 10-cents-a-litre excise tax. And nations face shortages of LNG and helium while supply chains go Covid-wonky once again. Inflation has surged back over 3% in North America. Mortgage rates are up. Realtors are apoplectic.

You’d think surging energy costs, production input shortages, higher prices and unstable suppliers would hit corporate operations, cut profits and drop stocks markets, right?

Of course. That would be normal. But this is not normal. Investors have been stampeding to buy, and pushing indices to nosebleed levels.

Tonight the futures may show buyer remorse. Or, the opposite. Maybe there’ll be more buying because US-Iran talks resume tomorrow, and investors are betting on one thing – TACO. Trump Always Chickens Out. In fact for the last twenty days or so, ever since the American president backed away from his threat to erase the Iranian civilization, Wall and Bay Streets have been counting on the same thing – the Trump Put.

He’ll have to cave, investors believe, since Iran isn’t folding, global sentiment is anti-American, the world economy is being whacked, NATO allies are staying away and Trump’s approval rate at home is terrible with midterm elections looming while Americans pay $4 a gallon for gas that was $2.90 in February.

More bombing of the country won’t do much, after 1,300 targets having already been hit. Ground troops are a miserable idea with a million Iranians in uniform, ready for a meat grinder battle. Iran controls the shipping route, and that can’t be easily changed. And Trump’s BFF, Bibi Netanyahu, is one of then most hated men on the planet these days.

No win. Gotta get out. And he will. Mr. Market knows it. Uppa she goes.

Of course, a lot of this is irrational. A salient piece in the NY Times on the weekend summed things up nicely. The stock market has been trying hard to ignore this conflict, it said, despite the non-stop war news.

“The stock market has decided this available information is not relevant,” Kyla Scanlon wrote. “That is a problem for all of us. President Trump deeply cares about the stock market, and if the stock market had been selling off, there is a good chance that this war would have been over a while ago. More broadly, the markets are showing the single lesson that the past 40 years have taught them. It will always be saved.”

Quite so. As Scanlon reminds us, Fed chair Greenspan saved the market after the massive, historic crash of 1987, unleashing liquidity and slashing rates. It happened again after the dot-com bubble burst. And again following the events of Nine Eleven.

Then Fed chair Ben Bernanke saved the market’s butt by chopping the cost of money and gobbling up bonds when the credit crisis and real estate collapse hit in 2008. When Covid and a global pandemic came along, central banks and government rushed to support the market with zero rates and buckets of public money. As disease killed millions, equity markets scored giddy new highs.

“Markets inferred a guarantee,” says Scanlon. “They’re running the same pattern: This is really bad, but we’ll get saved, so buy the dip.”

But now, are things different? Inflation caused by an energy crunch is unavoidable. But rate cuts will make it worse while rate hikes will bring recession. And governments are steeped in debt, while running OMG deficits (like in Ottawa). How can treasuries be Mr. Market’s salvation when they’re out of cash and low on borrowing capacity?

So, equity cowboys bet instead on TACO – Trump will yield as fast as he can – and on AI, since a third of the entire market is riding on it. The trouble is the tech sector needs massive dollops of expensive energy for data centres, as well as helium from Qatar and chips from Taiwan. There’s more than a small chance, we’re told, that one part of this complex chain comes unraveled. Then those who bet on always being saved, won’t be.

Possible?

Of course. Record highs during a pandemic, following a banking crisis or during a war seem rash, emotional and fragile. And while the general direction will be up so long as the world expands and technology advances, we could be at an ‘oops’ moment. You never know.

This is why we should all be diversified, balanced and calm. It’s not different yet.

About the picture: “Daily reader here Garth,” writes Warren. “Thank you for over 17 years of education and entertainment! This is our almost 2 year old Max. We get this look at least twice a day ‘we are going to the dog park right’?! He loves his local group of buddies to get out for a run. We haven’t seen snow yet  this year in the LM to match his white paws;)  All the best!”

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Source: https://www.greaterfool.ca/2026/04/19/the-trump-put/