If you spent any time watching the tickers in early 2025, you probably felt like you were on a rollercoaster designed by a madman. One day the Dow is hitting a record high, and the next, it's shedding 1,600 points because of a single announcement. That’s basically the trump effect on stock market in a nutshell. It’s high-octane, it’s unpredictable, and honestly, it’s kind of exhausting for anyone trying to maintain a steady retirement fund.
Most people think "The Trump Effect" is just one thing—either "stocks go up" or "chaos ensues." The truth is way more layered than that. We’ve seen this movie before, both in 2017 and again during the wild start to 2025. It’s a mix of massive corporate tax cuts that act like adrenaline for earnings and aggressive trade wars that act like a cold shower for global stability.
The 2025 "Liberation Day" Whiplash
Let’s talk about April 2, 2025. Trump dubbed it "Liberation Day" and announced sweeping reciprocal tariffs. The market didn't feel very liberated. In fact, it panicked. The S&P 500 lost nearly 5% in a single day, and the Nasdaq-100 futures tumbled 4.7%. It was the worst sell-off since the pandemic.
But then, just as quickly as the "crash" started, the tone shifted. By April 9, the administration announced a 90-day pause on those same tariffs. The result? A +9.5% single-day return, the best performance for the S&P 500 since 2008. This is the hallmark of the trump effect on stock market: extreme volatility followed by sharp recoveries when the "art of the deal" moves into the negotiation phase.
👉 See also: Hong Kong Stock Exchange Open: Why Timing Your Trades Is Kinda Tricky
The Two Faces of Policy: Taxes vs. Tariffs
To understand why the market reacts so weirdly, you have to look at the two main levers being pulled.
On one hand, you’ve got the One Big Beautiful Bill Act. This legislation basically extended the 2017 tax cuts, which is a massive win for corporate bottom lines. The Congressional Budget Office (CBO) projected this would boost corporate earnings by about $100 billion in 2025 alone. When companies keep more of their cash, they buy back shares and pay dividends. Investors love that.
On the other hand, you have the tariffs. By late 2025, the average effective tariff rate in the U.S. approached 12%. Goldman Sachs noted that by October 2025, U.S. companies and consumers were footing about 82% of the bill for these tariffs. That puts a squeeze on margins. So, you have this weird tug-of-war: tax cuts are pushing stocks up, while tariff-induced costs are pulling them down.
Sectors That Actually Won (and Lost)
Not every stock reacted the same way. The "Trump Trade" usually favors domestic-heavy industries over global tech giants.
- Financials and Banks: Deregulation is the big story here. When the government stops breathing down the necks of big banks like JPMorgan Chase, their costs go down and their flexibility goes up.
- Energy: It’s no secret that the "drill, baby, drill" philosophy helps traditional oil and gas. In 2025, the administration opened up more federal lands for leasing, which kept the sector resilient even when other parts of the market were shaky.
- Manufacturing: This one is tricky. While the hope was for a "manufacturing renaissance," the Institute for Supply Management (ISM) actually reported that U.S. manufacturing activity contracted for 10 consecutive months through December 2025. High input costs from steel and lumber tariffs made it hard for domestic factories to actually thrive.
- Big Tech and AI: Despite the trade noise, AI was the real hero of 2025. Companies like NVIDIA and Alphabet drove a huge chunk of the S&P 500’s 17.9% total return for the year. Even Trump’s tariffs couldn't stop the AI Capex boom, with spending on data centers reaching 61% above 2024 levels.
The Social Media "Fear Gauge"
We can’t talk about the trump effect on stock market without mentioning social media. Back in the day, it was Twitter (now X); now, it's a mix of Truth Social and various direct-to-market announcements.
Research from the International Journal of Finance and other studies show that presidential posts about "trade wars" or "tariffs" trigger immediate volatility that usually peaks about two hours after the post. For day traders, this is a playground. For your grandma’s 401(k), it’s a heart attack.
The VIX, often called Wall Street’s "fear gauge," spiked to over 45 points in early April 2025. That’s the highest it’s been since the 2020 crash. Basically, the market isn't necessarily reacting to the policy itself, but to the uncertainty of what the next post might say.
Comparing Trump vs. Biden: The Data
Investors love to argue about who was better for the market. Honestly, both had strong runs, but for different reasons.
| President | Term | S&P 500 Total Return |
|---|---|---|
| Donald Trump | 2017-2020 | 81.4% |
| Joe Biden | 2021-2024 | 57.8% |
| Donald Trump | 2025 (Year 1) | ~17.9% |
Trump’s first term ranks fourth for investor returns since 1980, trailing only Reagan and Clinton. Biden’s term was strong too, but it was marred by the 2022 bear market when the Fed had to crush inflation with interest rate hikes. Trump’s second term started with a bang, but the volatility has been much higher than the 2017 era.
What’s Next for 2026?
As we move into 2026, the trump effect on stock market seems to be settling into a "new normal." The initial shock of the tariffs has worn off, and businesses have started to adapt. The Fed is expected to cut rates at least twice this year, which usually acts as a tailwind for stocks.
However, we’ve got the midterm elections coming up in November 2026. Historically, the second year of a presidential term is the most volatile. With Trump’s approval ratings hovering in the high 30s, the market is already starting to price in the possibility of a divided government.
Actionable Insights for Your Portfolio
- Don’t Panic-Sell the Tweets: Most of the "Trump-induced" drops are transitory. As we saw in April 2025, the market often rebounds within weeks once a deal or a pause is announced.
- Focus on "America First" Sectors: If trade tensions remain high, look at companies that earn most of their revenue domestically. Small-cap stocks (like those in the Russell 2000) tend to be less exposed to international tariff wars than the "Magnificent 7."
- Watch the 10-Year Treasury: The bond market is often a better "truth teller" than the stock market. In 2025, 10-year yields hit 4.8% before settling near 4.0%. If yields start climbing again, it means the market is worried about the $3.4 trillion in debt projected over the next decade.
- Balance AI with Value: Tech led the charge in 2025, but the S&P 500 Value Index performed remarkably well in the latter half of the year. Don't put all your eggs in the semiconductor basket; industrials and financials are the primary beneficiaries of the current deregulation push.
The bottom line is that the trump effect on stock market is a double-edged sword. You get the growth-fueled excitement of tax cuts and deregulation, but you have to pay the "volatility tax" that comes with trade-by-announcement. Staying diversified and ignoring the daily noise is the only way to survive the ride.