Brick by brick, investors are building a towering wall of worry. Trump administration actions, evolving Federal Reserve (Fed) monetary policy, relentless inflation, the DeepSeek debate, and a US economic growth scare have all contributed to rising investor anxiety in recent weeks.
Importantly, this note is neither an endorsement nor an indictment of Trump policy. It’s an apolitical attempt to assess the economic and capital market reaction to the early days of the second Trump administration.
It may be hard for investors to believe, but there is more to market volatility than reacting to the latest Trump executive action. Trump administration policies are fundamentally contradictory. Some will boost growth and inflation while others may curtail growth and be disinflationary. The size, timing, and impact are highly uncertain. Many investors support the president’s pro-growth business agenda, but the administration’s frenetic approach to policymaking is unsettling.
Despite the S&P 500 hitting three all-time highs so far this year, extraordinarily tight credit spreads, and mild measures of market volatility, there is noticeable uneasiness in news headlines, client meetings, and market sentiment. The American Association of Individual Investors (AAII) Investor Sentiment Survey from February 26 revealed that more than 60% of respondents were bearish about the stock market in the next six months, a 20% increase from the prior week.
This is a healthy departure from the near-euphoric sentiment levels reached in early December.
And following the typical Election Day to Inauguration Day rally, it’s common for investor doubts to surface regarding the new administration’s developing agenda. Those concerns plagued the early days of the Obama, Trump 2017, and Biden administrations, but the S&P 500 produced solid returns in all of their first years. According to Strategas Research Partners, the S&P 500 has had a positive return in nine of the past 10 first years of the four-year presidential term. And over the past 20 years, year one has delivered the best average performance of the four years.1
So, let’s examine four bricks in the monumental wall of worry and determine whether investors should keep scaling the wall despite the risks.
The Messiness of Making America Great Again
Voters elected Donald Trump and investors celebrated his victory with a post-election rally. So, why the investor nervousness now that the Trump administration is aggressively pursuing its promised policy goals?
In just the first six weeks of Trump’s second term, investors have been asked to digest a substantial number of executive actions, lawsuits, tariff announcements, tougher immigration policy, Department of Government Efficiency (DOGE) activity, and a rapidly changing new world order.
This is all unfolding with a possible government shutdown looming on March 14. It’s a lot. Understandably, investors are anxious, and they’re trying to assess the risk and return impacts in real time, in a very fluid environment.
There have been 108 executive actions —73 executive orders, 23 proclamations, and 12 memorandums — signed by President Trump. The president signed more executive orders in his first 10 days in office than recent presidents signed in their first 100 days. More than 90 lawsuits have been filed challenging Trump’s executive orders and moves to reshape the federal government. The incredible amount of activity makes it difficult for investors to determine the potential economic impact from the executive actions and lawsuits.
Trade policy from the self-proclaimed Tariff Man is a prime example. Tariffs on Mexico and Canada went into effect on March 4 after a 30-day delay and an existing 10% tariff on China doubled. On February 13, the president issued a memorandum on the development of a comprehensive plan on reciprocal trade and tariffs, citing the economic and national security threat posed by the trade deficit. Tariffs are planned for steel, aluminum, copper, autos, semiconductors, and pharmaceuticals. The list of products and countries threatened by tariffs grows daily.
The Trump administration views tariffs as a tool to address trade imbalances, raise revenues for the federal budget, and pursue policy goals such as immigration enforcement. But unpredictable tariffs have contributed to an increase in consumer inflation expectations and created challenges for businesses.
Market participants also will be watching the impact of the next phase of immigration policy. Border Patrol Chief Mike Banks recently told CBS News that illegal border crossings at the US southern border are down 94% from the same period last year. Banks credited the many executive actions taken by President Trump for the significant decline in illegal immigration. Cracking down on illegal immigration and arresting criminals is good policy, but it’s very different from the worst fears of mass deportations threatened on the campaign trail.
The number of legal permanent residents entering the US has been remarkably consistent since 2017 — averaging roughly one million per year, except for an understandable dip during the pandemic. Legal immigration is good for the US economy.
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Originally Posted March 4, 2025 – Why Investors Should Continue to Climb the Wall of Worry
Footnotes
1 Policy Outlook, Strategas Research Partners, January 17, 2025.
2“Personal Income and Outlays, January 2025,” Bureau of Economic Analysis, February 28, 20205
3 National Association of Realtors, February 27, 2025.
4 S&P Global Flash US PMI®, February 27, 2025.
5 News Release, Bureau of Labor Statistics, February 27, 2025.
6 Bloomberg Finance, L.P., February 27, 2025.
7 S&P Global Flash US PMI®, February 27, 2025.
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