Podcast Summary: On with Kara Swisher – "How Trump's Policies Will Shape the Stock Market with Aswath Damodaran"

Release Date: February 27, 2025

In this insightful episode of On with Kara Swisher, award-winning journalist Kara Swisher engages in a comprehensive discussion with Aswath Damodaran, a renowned professor of finance at NYU’s Stern School of Business, often hailed as the "Dean of Valuation." They delve deep into the current state of the U.S. stock market, the pervasive influence of former President Donald Trump's policies, and the broader economic landscape affecting both investors and corporations.

1. Current Stock Market Valuation

Kara Swisher opens the conversation by citing Damodaran’s recent assertion that "there is an 80% chance that stocks are overvalued and only a 20% chance that they are undervalued" at today's prices (03:53). Aswath Damodaran elaborates on this by highlighting the unprecedented stock market performance over the past two years, with consecutive 25% annual gains reminiscent of the 1990s. He emphasizes the disparity between rising stock prices and more modest earnings growth, suggesting that stocks have "run a little ahead of earnings" and are due for a correction (04:58).

2. Influence of the Magnificent Seven

Damodaran discusses the disproportionate impact of the Magnificent Seven—Apple, Microsoft, Amazon, Google (Alphabet), Nvidia, Meta (formerly Facebook), and Tesla—on the overall market performance. He notes that these giants have "carried the market" and questions the sustainability of their dominance, especially with Nvidia’s recent surge (07:07). He asserts that the inevitable "cleaning up" of overvalued stocks will likely see the most significant adjustments in sectors where these companies have led the charge.

3. Market Volatility and Trump's Policies

The discussion shifts to the recent volatility in the stock market, marking the worst week since Trump's inauguration. Damodaran attributes this jitteriness to the U.S. market undergoing "shock therapy" due to unpredictable policy changes, leading to "market exhaustion with change coming at it constantly" (07:39).

4. Impact of Trump’s Policies on the Economy and Markets

a. Government Spending and Regulation

Damodaran critiques Trump's approach to government spending cuts as overly aggressive and lacking sophistication. He warns that dismantling government structures like Medicaid, Medicare, or Social Security could have "rippling effects" on the economy and increase unemployment (12:15).

b. Deregulation and the CFPB

The conversation touches on the demise of the Consumer Financial Protection Bureau (CFPB) under Trump, highlighting the potential negative impacts on consumers and increased vulnerabilities for businesses (13:24). Damodaran warns that the absence of such regulatory bodies could allow "worst actors" to exploit the market, posing risks to consumer protection.

c. Tariffs and Trade Policies

Damodaran discusses Trump's tariff policies, acknowledging that while tariffs are a net negative for the global economy, the U.S. may endure short-term pains better due to its significant consumption market (15:31). However, he cautions that prolonged protectionism and trade barriers could severely impact global companies’ growth and profitability.

5. Impact on Specific Companies

a. Nvidia

Damodaran compares Nvidia to Tesla, noting both companies evoke strong emotional responses from investors. Despite Nvidia’s impressive performance, he argues that its current valuation is unsustainable given its earnings and cash flow projections, leading him to downsize his holdings (42:29).

b. Tesla

In discussing Tesla, Damodaran highlights its transition into a "mature growth stage" as outlined in his book Corporate Life Cycle. He points out challenges such as declining sales in Europe, increased competition from companies like BYD, and Tesla’s entanglement with political controversies surrounding its CEO, Elon Musk (34:11; 37:59).

c. Palantir

When addressing Palantir, Damodaran expresses skepticism regarding the company's valuation due to unclear market size and business prospects, categorizing it as a risky investment despite its substantive AI-related products (44:13).

d. Apple

Apple’s strategic investment of $500 billion in the U.S. over the next four years is analyzed as a move towards regaining control over its production processes. Damodaran praises Apple’s disciplined spending and steady growth outlook, positioning it as a "cash flow machine" with sustainable growth expectations (46:20).

6. Global Economic Trends: Tariffs and Nationalism

Damodaran posits that Trump’s tariff initiatives signal a broader trend towards nationalism and protectionism globally, diverging from the decades-long trend of globalization. He anticipates that this shift will persist over the next decade, impacting global trade dynamics and corporate growth strategies (17:57; 18:32).

7. Investment Banking and IPO Trends

Responding to an expert question from William D. Cohen, Damodaran explains the sluggish state of investment banking in 2025. He attributes the hesitancy in deal-making to corporate risk aversion amid economic uncertainty. Additionally, he notes a decline in Initial Public Offerings (IPOs), deeming it healthier as many previously hyped IPOs were driven by unsound business models (27:58).

8. Healthcare as an Investment Sector

Damodaran identifies healthcare as a sector ripe for disruption due to widespread dissatisfaction across all stakeholder groups. He anticipates significant changes in the next decade as companies vie to address systemic inefficiencies, though he remains cautious about identifying a clear market leader (53:11).

9. Investment Strategy Advice

When addressing market valuation concerns, Damodaran advises against attempting to time the market based on valuation metrics like the Shiller PE ratio. He shares his own findings that market timing often results in underperformance due to the difficulty in accurately predicting corrections. His recommendation is to remain invested unless immediate liquidity is required (56:26).

10. Conclusion

Kara Swisher and Aswath Damodaran wrap up the conversation by reiterating the complexities and uncertainties facing the U.S. stock market. Damodaran emphasizes the importance of staying connected to long-term investment strategies rather than reacting to short-term market fluctuations (57:00).

Notable Quotes:

• Aswath Damodaran (03:53):

  "Stocks have run ahead and they've got to do there’s some cleaning up to."

• Aswath Damodaran (07:07):

  "We have the MAG7 or the FAN GAM as they were before Nvidia showed up... And I don't think you can do that for forever."

• Aswath Damodaran (12:27):

  "You can argue the way Doge and Musk are going about breaking the system is the way you run a tech company... But when you're talking about the US government... This is an extremely dangerous thing to break."

• Aswath Damodaran (56:27):

  "Do nothing unless you have some special conduit that tells you the correction's gonna happen in the next two weeks."

This episode offers valuable perspectives on the intersection of political policies and market dynamics, providing listeners with a nuanced understanding of the forces shaping the current investment landscape. Whether you're an avid investor or simply interested in economic trends, Damodaran's expert insights shed light on the potential paths the U.S. stock market may navigate in the foreseeable future.