April 6, 2025

QuickTakes

MARKET CALL:

Wall Street Is Main Street

Conspiracy theories are usually wrong even though they seem to explain a lot. The latest conspiracy theory floating on social media is that President Donald Trump is causing a recession to bring interest rates down to reduce the federal government's net interest outlays and to lower mortgage rates to make homes more affordable. A recession would also weaken the foreign exchange value of the dollar, which would boost exports and depress imports. Trump's tariffs should force manufacturers to move to the US and reduce foreign demand for American farm products, which would lower food prices in the US. What about the stock market crash? Not that many Americans own stocks, according to this conspiracy theory.

Sounds nuts to us! However, on April 4 at 8:25 am, Trump reposted a TikTok video on his Truth Social that follows this script! The original tweet noted, "Trump is playing chess while everyone else is playing checkers." The video concludes that Trump is "taking from the rich short-term and handing it to the middle class through lower prices."

So perhaps the conspiracy theory isn't nuts after all since Trump is either confirming it or toying with us. In any case, there are so many holes in this seemingly logical narrative. For now, let's just focus on stock ownership:

(1) Gallup survey. Trump's tariffs are causing a stock market crash that is hurting millions of Americans, especially the middle class and retired or retiring seniors. Gallup's annual poll of stock ownership shows that 62% of US adults have money invested in the stock market (chart). The vast majority (87%) of upper-income Americans, those with annual household incomes of $100,000 or more, own stock. That compares with 25% of lower-income Americans (those whose annual incomes are less than $40,000). However, two-thirds of middle-income Americans, 65%, own stock.

(2) Equity shares. Fed data show that a record 43.5% of the financial assets of US households (including nonprofit organizations) is in equities (chart). That makes consumer spending especially vulnerable to a negative wealth effect from rapidly falling stock prices. That is certainly one way to engineer a consumer-led recession that would hurt lower-income and middle-income households very hard.

(3) Wealth effect. Households held a record $46.8 trillion in corporate equities and mutual funds at the end of last year. Baby Boomers owned a record $25.2 trillion of corporate equities and mutual fund shares at the end of last year (chart). A 20% drop in stock prices would result in losses of $9.4 trillion and $5.0 trillion to all households and Baby Boom households, many of whom are either retired or planning to retire.

At the end of last year, retirement assets in IRAs totaled $15.2 trillion (chart). So a 20% drop in stock prices would amount to a loss of under $3.0 trillion assuming that some portion of the IRAs are in fixed income securities.

We believe that Wall Street and Main Street prosper and suffer together. The Trump administration disagrees. On March 4, US Treasury Secretary Scott Bessent said the Trump administration is focused on Main Street, not Wall Street, in response to the market sell-off following tariffs on Canada, Mexico, and China. "Wall Street's done great… Wall Street can continue to do fine," he added. "But we have a focus on small business and the consumers. So we are going to rebalance the economy. We're going to bring manufacturing jobs home."

Kevin Hassett, head of the White House's National Economic Council, said today that Trump is "not trying to tank the market," Hassett said. "He’s trying to deliver for American workers."

On Sunday evening aboard Air Force One, when asked about the stock market, Trump told reporters, "I don’t want anything to go down, but sometimes you have to take medicine to fix something." S&P 500 futures are down 2.3% this evening.

We believe (hope) that congressional Republicans, fearing they will get killed (by voters who are getting killed in the stock market) in the midterm elections next year will pressure Trump to postpone tariffs on countries that are negotiating with the US to lower tariffs. They can also join Democrats to pass legislation to limit the tariff powers of the President, but Trump will veto any such bills. The courts may also soon weigh in on whether Trump's tariffs are unconstitutional.

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