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A distinct chill is spreading in markets, with a shrinking set of investors and analysts willing to speak out on the destructive risks embedded in Donald Trump’s economic policy platform.
The shift is subtle, but economists and market participants often privately agree they have spotted scattered signs of self-censorship, as the language analysts use in public pronouncements has edged towards neutral.
Trade tariffs that they decried as “aggressive” at the start of this year have become simply “large”. US financial and economic policy is now lacking “predictability”, not “credibility”. Blunt criticism of “reckless” efforts to unseat senior officials from the country’s central bank has dissolved into a bland discussion of the procedure now at hand.
But the biggest change is in what goes unsaid, in public at least. Some more lively market participants say they have received a tap on the shoulder from bosses and a request to tone down criticism of the administration’s antics, or have seen written analysis chewed up in compliance and tossed aside before it sees the light of day. All say the driver here is a fear of retribution from the president.
“I’ve never seen anything like it,” said one seasoned fund manager, whom I won’t name here for obvious reasons. “What’s happening is you are not getting research that’s telling the truth.”
Analysts at banks and investment firms always tread a delicate path between giving clients an unvarnished view of economic policy, which they want to do, and picking political sides, which they want to avoid. But this goes beyond the usual euphemisms, and has intensified since the summer, when Trump called for Goldman Sachs to fire its chief economist, who had penned a level-headed note on trade tariffs that drew his ire.
The bank’s chief executive David Solomon “should go out and get himself a new Economist or, maybe, he ought to just focus on being a DJ, and not bother running a major Financial Institution”, he posted — an allusion to Solomon’s famous hobby on the wheels of steel. (I will leave an assessment of his skills to colleagues.)
No one got fired after Trump’s outburst. But the message to rank-and-file analysts across Wall Street was clear: stick to the most neutral tone you can to describe what almost every money manager knows to be a ghastly assault on the institutional underpinnings of the world’s most significant economy and market.
In private, these analysts are often scathing about Trump’s financial lieutenants (with Treasury secretary Scott Bessent a rare exception), the corporate kowtowing, the threats to the Federal Reserve’s independence, the undermining of the Bureau of Labor Statistics, the chaotic trade policy — all of that and more. In public, they are studiously neutral. “We all saw what happened to Goldman,” said one investor. “No one wants to be next.”
Some outliers stand out here, chiefly from those with the sort of status that means they can speak their mind, including Bridgewater’s Ray Dalio and JPMorgan’s Jamie Dimon. Former Fed chair Janet Yellen has been blunt and forthright in her defence of Fed independence. More broadly, though, bankers and investors, especially those in the US, are much more guarded.
Let’s be positive: Maybe this is a good thing. After all, stocks are holding up just fine, better than fine in fact, suggesting this political regime shift in the US simply matters less to portfolios than pearl-clutching liberals had anticipated, at least in the short term.
Nonetheless, the obvious parallels to this situation are not flattering. Back in the Eurozone debt crisis, Italian authorities charged executives from Fitch Ratings and S&P with market manipulation for downgrading the country’s government debt. At the time, investors did not judge this to be the sign of a nation taking its debt sustainability seriously.
Likewise, when Turkey’s authoritarian president warned in 2019 that investors would pay “a heavy price” for betting against the lira, it did not go down well. Authorities there also sparked horror among investors when they investigated JPMorgan over its recommendation in a note to clients to steer clear of the currency.
Luckily, professional investors are generally capable of thinking for themselves. Those who have been in the money game for long periods should also be able to rely on winks, nods and long-standing relationships with analysts for a warts-and-all assessment of the policymaking environment.
Some analysts and money managers are true believers in the scope for US stocks to keep sailing higher, reasoning that if corporate America can cope with a total shutdown in global trade in the Covid pandemic, it can withstand a little political drama here and there and a bit of a lift to import costs.
But anyone who makes a living out of the inner workings of capitalism knows full well that over time, state meddling in monetary policy and corporate life, and the degradation of official economic data, are bad for any investor’s bottom line. That’s why most are so reliant on the US, with its long history of institutional resilience and firm belief in full-fat capitalism, in the first place. The sense of jeopardy in financial circles over expressing a loud defence of those fine qualities is one of many signs that no matter how shiny the stock market, all is not well.
katie.martin@ft.com
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