What markets bet President Trump will do

Summary

Planet Money: What Markets Bet President Trump Will Do

In the episode titled "What Markets Bet President Trump Will Do," NPR's Planet Money delves into the intricate reactions of financial markets following the election of former President Donald Trump as the 47th President of the United States. Through insightful discussions and expert analyses, the hosts decode the signals emanating from various market sectors, shedding light on investor sentiments and predictions about the upcoming economic landscape.

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1. Introduction: Market's Immediate Reaction to Trump's Victory

Timestamp: 00:41 - 03:30

The episode kicks off by highlighting the swift and significant movements in the stock market following Trump's electoral victory. Hosts Jeff Guo, Erica Barris, Sally Helm, and Ira Glass outline the episode's objective: to interpret the financial bets made by Wall Street professionals and understand their implications for the broader economy.

Jeff Guo remarks, "If you read between the lines, if you break down what these financial types were buying and what they were selling, you can learn a lot about where the economy might be headed."

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2. Sectors on the Rise: Banking, Cryptocurrency, and Big Tech

Timestamp: 03:30 - 09:36

a. Banking Sector Surges

Erica Barris identifies the banking sector as one of the primary beneficiaries of Trump's win. Major financial institutions like JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs saw their stocks rise by as much as 13%.

Erica Barris explains, "One of the big things Trump famously is not a fan of is what he sees as heavy-handed regulation."

The anticipated deregulation under Trump's administration is poised to reduce constraints on banks, allowing them more flexibility in their operations.

b. Cryptocurrency Rally

The cryptocurrency market, particularly Bitcoin, experienced a notable surge, with Bitcoin prices exceeding $75,000.

Erica Barris attributes this to potential deregulatory measures towards the crypto industry, stating, "The SEC has been trying to crack down on crypto companies. And Trump has said on day one, he'd replace the head of the SEC with someone who's more crypto-friendly."

c. Big Tech Gains

Big technology firms such as Alphabet, Microsoft, Intel, and Nvidia also witnessed significant stock appreciation. The underlying reason ties back to anticipated deregulation and a more lenient stance on antitrust issues.

Jeff Guo points out, "The Biden administration has been very antitrust heavy. It’s especially gone after big tech."

Investors believe that Trump's approach would be less restrictive, fostering an environment conducive to the continued growth of big tech giants.

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3. Sectors on the Decline: Tariffs' Impact on Various Industries

Timestamp: 09:36 - 17:18

Transitioning from rising sectors, the hosts discuss industries that faced downturns due to anticipated policy changes, particularly the imposition of tariffs.

a. Automotive Industry: Volkswagen

A German automaker, Volkswagen, saw its stock dip as markets anticipated higher tariffs on imported vehicles, potentially making them more expensive for American consumers and reducing sales.

b. Retail Sector: Dollar General

Despite being an American company, Dollar General's reliance on overseas-produced goods made it vulnerable. Increased tariffs would raise the cost of imported items, undermining the company's value proposition of affordable pricing.

Sonal Desai, Chief Investment Strategist for CFRA Research, emphasizes, "Their attraction to consumers is cost. If there's going to be a tariff, an additional charge placed on these items produced overseas, that is going to be passed to the consumer."

c. Agriculture: Soybeans

Soybean futures declined as markets anticipated retaliatory tariffs from China—a nod to the trade tensions reminiscent of the first Trump administration's era.

d. Renewable Energy

Renewable energy companies, including those in wind and solar sectors, experienced a downturn. Trump's inclination to dismantle the Inflation Reduction Act (IRA), which subsidized renewable initiatives, cast uncertainty over the sector's future.

Robinson Meyer, founding executive editor at Heat Map News, notes, "A lot of red states benefit from the IRA. So districts that voted for Trump in 2020 received three times more funding from the IRA than districts that voted for Biden."

Despite initial declines, Meyer suggests the IRA's entrenched benefits might shield the sector from complete rollback due to the political support in key regions.

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4. Treasury Market Insights: Predictions on Inflation and Interest Rates

Timestamp: 19:35 - 27:40

Shifting focus to the bond market, the episode examines the $28 trillion U.S. Treasury bonds market to glean broader economic forecasts.

a. Treasury Sell-Off and Inflation Expectations

A significant sell-off in Treasury bonds, particularly the 10-year Treasuries, indicated a market belief that Trump's policies might exacerbate inflation rather than curb it.

Sonal Desai articulates, "When folks sold off their Treasuries on Wednesday, it was partly a prediction that Trump's policies would not in fact bring inflation down, but instead would make inflation go back up."

b. Interest Rates Surge

The sell-off also signaled expectations of rising interest rates. Higher projected interest rates reduce the attractiveness of existing bonds with lower yields, prompting investors to divest in anticipation of better returns elsewhere.

Ira Glass summarizes, "Higher rates. But these predictions change all the time. They're just making educated and sometimes not so educated bets."

c. Fiscal Deficit Concerns

The looming fiscal deficits under Trump's administration, fueled by proposed tax cuts and increased government spending, were central to the bond market's apprehensions.

Art Hogan comments, "We have conservatively, seven and a half trillion from the Republicans... Pretty soon you're talking about real money here, because we're already running very, very large fiscal deficits."

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5. Concluding Insights: The Fluidity of Market Predictions

Timestamp: 27:40 - End

The episode wraps up by emphasizing the dynamic nature of market predictions. While current trends suggest certain economic directions based on Trump's anticipated policies, the markets remain inherently unpredictable and subject to constant change.

Jeff Guo reflects, "The market is not omniscient. Markets change their minds all the time. They don't actually know what's going to happen in the future. They're just making educated and sometimes not so educated bets."

The hosts underscore the value of monitoring market movements as a window into investor sentiments and potential economic trajectories, while also cautioning against viewing these predictions as certainties.

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Notable Quotes

• Jeff Guo [01:11]: "The financial markets had some major reactions to former President Donald Trump's win."

• Erica Barris [05:05]: "Like for instance, the government requires banks to keep a certain amount of money in reserve, kind of like a rainy day fund."

• Sonal Desai [11:13]: "President elect Trump has basically said his favorite word in the dictionary is tariff."

• Robinson Meyer [15:50]: "A lot of red states benefit from the IRA."

• Art Hogan [22:54]: "If you have unlimited demand, it's cool. You can charge what you want to charge. But if you increase the supply and you haven't done too much on the side of demand, well, you know, the price is going to have to come down or the interest rate is going to have to go up."

---

Produced by: Sam Yellow Horse Kessler and Willa Rubin
Edited by: Martina Castro
Engineered by: Gilly Moon
Fact-Checked by: Sierra Juarez
Executive Producer: Alex Goldmark

---

This episode of Planet Money offers a comprehensive analysis of how financial markets interpret and react to political shifts, providing listeners with a deeper understanding of the symbiotic relationship between politics and economics.

Transcript

[Ira Glass]

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[Jeff Guo]

Just a heads up before we get started, we're going to mention a lot of companies in this episode, including some that are corporate funders of npr. JP Morgan Chase, bank of America, Silicon Valley Bank, Microsoft and Apple are all NPR funders. They and other funders play no role in our coverage decisions.

[Erica Barris]

This is Planet MONEY from npr.

[Jeff Guo]

On the morning after the election, as Americans were still processing the results, people with money were making moves. I'm talking about investors, traders, hedge fund, Wall street types.

[Erica Barris]

Right now, the stock market is rallying.

[Sally Helm]

Around the news that former President Trump will be named the 47th president of the United States. Bond yields surging this morning as investors react to Donald Trump winning a second presidential term. Cryptocurrencies rallying big time. We're seeing bitcoin now above $75,000.

[Jeff Guo]

The financial markets had some major reactions to former President Donald Trump's win. And if you read between the lines, if you break down what these financial types were buying and what they were selling, you can learn a lot about where the economy might be headed or at least where people were willing to bet the economy is headed. Hello and welcome to Planet money. I'm Jeff Guo.

[Erica Barris]

And I'm Erica Barris.

[Sally Helm]

And I'm Sally Helm.

[Ira Glass]

And I am Keith Romer.

[Jeff Guo]

Yes, all four of us have assembled today to think about a big what could the next four years look like for the economy?

[Erica Barris]

Well, as a candidate, Trump promised all kinds of things, from lower taxes and lower inflation to a lot more tariffs.

[Ira Glass]

But how much of that actually comes to pass is kind of anyone's guess.

[Sally Helm]

Yeah, and one of those guesses comes from Wall, from people who were making big financial bets on what will happen to the country.

[Jeff Guo]

So today on the show, we are going to decode all of the signals coming from the markets after the election. What went up, what went down, and most importantly, what does that mean for the rest of us?

[Ira Glass]

This is Ira Glass of this American Life. Each week on our show, we choose a theme, tell different stories on that theme. All right, I'm just going to stop right there. You're listening to an NPR podcast. Chances are you know our show. So instead I'm going to tell you we've just been on a run of really good shows lately, some big, epic, emotional stories and some weird, funny stuff, too. Download us this American Life.

[Keith Romer]

This message comes from Grammarly. 88% of the work week is spent communicating, so it's important your team gets it right. Enter Grammarly. Grammarly's AI helps teams communicate clearly the first time. It goes beyond basic grammar to help teams instantly create and revise drafts in just one click, all without leaving the page they're on. Join the 70,000 teams and 30 million people who use Grammarly to move work forward. Go to Grammarly.comenterprise to learn more Grammarly Enterprise Ready AI for the first part.

[Jeff Guo]

Of today's show, we're going to focus on the stock market. We're going to decode how the stock market reacted to Trump's win and what that tells us about what Wall street thinks the next couple years are going to look like. Now, one of the most dramatic things that happened on the day after the election is that stocks overall soared. The Dow, the S and P, the Nasdaq, they all hit record highs on Wednesday. A lot of that overall spike in stocks can be explained by the simple fact that Trump promised to cut taxes on companies, which companies, of course, love. Also, that was exactly what he did the last time he was president. This time, he says he's gonna cut corporate taxes even more. But if you look more closely, certain parts of the stock market went way up and other parts went way down. And that gives you some interesting clues about what Trump's win might mean for different parts of the economy and for our country. So, to start off, we're going to decipher why some specific parts of the stock market went way up after the election.

[Erica Barris]

And that's where I come in.

[Jeff Guo]

Erica Barris. Hello.

[Art Hogan]

Hi.

[Erica Barris]

Jeff Guo.

[Jeff Guo]

So, Erica, you looked at three sectors that seem to benefit the most from Trump's win, Right?

[Erica Barris]

The three surgiest sectors. And for this, I spoke with Art Hogan. Art is a longtime market strategist, and he told me that every four years, the presidential election is a very busy week for analysts, strategists, and market watchers.

[Ira Glass]

It's kind of one of our Super Bowls. Right. It's the super bowl of information overload for everyone.

[Erica Barris]

Yeah. A frenzy of trading and activity. First up on our list of the surgiest sectors in the stock market, banking. Financial companies like JPMorgan Chase, Wells Fargo, bank of America, Goldman Sachs were up by as much as 13%.

[Jeff Guo]

That's. That's like, a lot.

[Erica Barris]

Exactly. And lots of, like, smaller regional banks. Their stocks were up, too. And do you want to guess why?

[Jeff Guo]

I'd say it's probably deregulation.

[Erica Barris]

Exactly. And that's what Art said too.

[Ira Glass]

It's a clearly stated part of the Republican platform coming in that our regulations are too tight and we need to relax that to spur more economic activity.

[Erica Barris]

One of the big things Trump famously is not a fan of is what he sees as heavy handed regulation. And one industry that's very heavily regulated are financial companies, especially since the 2008 financial crisis.

[Jeff Guo]

So people think Trump is going to roll back regulations on banks?

[Erica Barris]

Yeah. Like for instance, the government requires banks to keep a certain amount of money in reserve, kind of like a rainy day fund, and it requires larger banks to undergo regular stress tests. But the last time Trump was president, he rolled back some banking regulations for smaller banks, and that opened up the possibility for those banks to take on more risk.

[Jeff Guo]

Right. I remember when Silicon Valley bank failed last year.

[Erica Barris]

Exactly.

[Jeff Guo]

There are people who are blaming those looser regulations.

[Erica Barris]

Yeah. And it is not just banks, like credit card company shares. They also went up probably because Trump is not a fan of the Consumer Financial Protection Bureau, because the CFPB creates, you know, pesky regulations. Like they recently put a cap on how much credit cards can charge us in late fees, which is good for.

[Jeff Guo]

Us, but probably bad for the credit card companies.

[Erica Barris]

Yep, Yep. Now that was surgical sector number one. Sergi sector number two was crypto.

[Sonal Desai]

The United States will be the crypto.

[Ira Glass]

Capital of the planet and the bitcoin superpower of the world. And we'll get it done.

[Erica Barris]

The day after the election, bitcoin was at a new historic high. And crypto company stocks surged as well. Jeff Guo, do you want to guess why?

[Jeff Guo]

Okay. Okay. Is it more deregulation?

[Erica Barris]

Yep. Right now the securities and Exchange Commission, the agency that regulates investments, the SEC has been trying to crack down on crypto companies. And Trump has said on day one, he'd replace the head of the SEC with someone who's more crypto friendly.

[Jeff Guo]

Okay, so number one, we have bank stocks went up. Number two, we have crypto went up. What is number three?

[Erica Barris]

Number three on the list of surgiest sectors of the economy? Tech.

[Jeff Guo]

Uh huh. Tech.

[Erica Barris]

Now this was not every tech stock, but a lot of them, like Alphabet, Microsoft, Intel, Nvidia, and Jeff, do you want to guess why?

[Jeff Guo]

I'm feeling like there's a pattern here, so I'm going to say deregulation.

[Erica Barris]

Is that your final answer? Yes, you are correct. But also, but also, but also antitrust.

[Jeff Guo]

Okay. I think antitrust counts as a type of regulation.

[Erica Barris]

It's regulation adjacent. It's like the.

[Jeff Guo]

It's like the government regulating how big Companies can get regulating monopolies.

[Erica Barris]

Right. And the Biden administration has been very antitrust heavy. It's especially gone after big tech. It's filed major lawsuits against Amazon, Google, Apple. Now, Trump has not always gotten along with the big tech companies, but Art says it seems like investors believe the Trump administration would be a lot squishier on this kind of antitrust stuff.

[Ira Glass]

And I think that the new administration might be, you know, more favorably inclined to say, no, that's not a monopoly.

[Jeff Guo]

Okay. So under Trump, the age of big tech companies might continue.

[Erica Barris]

Yep.

[Jeff Guo]

All right, so to sum up, three industries that really surged after the election were banking, crypto, and big tech. And the common denominator for all three.

[Erica Barris]

Seems to be deregulation.

[Jeff Guo]

Deregulation, no more rules.

[Erica Barris]

Wild west, maybe. Maybe you don't. We don't know.

[Jeff Guo]

Well, thanks for that, Erica.

[Erica Barris]

Thank you, Jeff.

[Jeff Guo]

So far, we've been talking about things that have gone up after the election. Now we're going to talk about some things that went down. For that, we are turning to Planet Money host Sally Helm, bringing us down. Jeff, hello to you, too, Sally.

[Sally Helm]

Hello. Hello.

[Jeff Guo]

So tell us about some of the industries that people are betting against and why.

[Sally Helm]

All right, so I talked about this with Sam Stovall, who is the chief investment strategist for CFRA research. Sam, how many times a day would you say that you usually think about the stock market?

[Sonal Desai]

It's more a question of how many times do I not think about the stock market since it's both my vocation and avocation.

[Sally Helm]

So rare that I get to talk to someone about their avocation. Jeff. Sam means that he looks at the stock market for his vocation, his job, but also, like, as a hobby for fun. He told me he sometimes even dreams about it. And, okay, so to start us off, I want to give you a few examples of companies that people seemed to be betting against after the election. Volkswagen, the German carmaker. Dollar General, the US Discount store. And this is not a company, but soybeans. Immediately after the election, soybean futures were down. And what unites all of those trades is one of Trump's biggest economic policy proposals, Tariffs.

[Sonal Desai]

President elect Trump has basically said his favorite word in the dictionary is tariff.

[Sally Helm]

So tariff is a tax on imports. President elect Trump was a big fan of tariffs in his first term. And this campaign, he has floated the idea of a 10 to 20% tariff on all imports. And he has also proposed very high tariffs on goods, specifically coming from China.

[Jeff Guo]

Yeah. And these tariffs, they would be way more than the Tariffs he put into place the first time he was president.

[Sally Helm]

True. And the market seems to be expecting that at least some of these tariffs could happen. And you can see that through those three examples that I mentioned. So let us look at number one. Volkswagen.

[Jeff Guo]

Okay, that makes sense. Volkswagen is a foreign car company. And if there's going to be a higher tariff on those foreign cars when they get imported, the cars are going to get more expensive for American customers, and Americans will buy fewer of them.

[Sally Helm]

Right. But then we get to number two, Dollar General, Their stock also went down after the election.

[Jeff Guo]

And Dollar General, that is a US Company.

[Sally Helm]

Indeed it is. It is headquartered in Tennessee. But Zan told me a lot of their cheap goods come from overseas. You know, that's part of their business model.

[Sonal Desai]

Their attraction to consumers is cost. And if they can purchase items that cost very little to produce, they were produced in Vietnam, in China. Well, if there's going to be a tariff, an additional charge placed on these items produced overseas, that is going to be passed to the consumer.

[Jeff Guo]

Right. Which could hurt companies like Dollar General, because part of their sell is that the goods are supposed to be cheap.

[Sally Helm]

Exactly. This could also be what's going on for a company like Wayfair. They were also down after the election. But, Jeff, now we get to the last example, which is a weird one. Soybeans.

[Jeff Guo]

Soybeans, which are not a company.

[Sally Helm]

They're not a company. That's not a knock on soybeans.

[Jeff Guo]

No, no, no.

[Sally Helm]

Very nice bean.

[Jeff Guo]

No, soybeans are great. In fact, a lot of them are grown right here in the US they.

[Sally Helm]

Are, but we sell a lot of them in China.

[Sonal Desai]

And so the worry is tit for tat. If the U.S. increases its tariffs on Chinese imports to the U.S. well, then China will increase tariffs on U.S. exports to China. Soybeans among them.

[Sally Helm]

This prediction is trade war that happened under the first Trump administration. Right. China slapped a tariff on our soybeans. So the market's vision is a world with more trade barriers kind of in all directions. And in fact, global shipping companies were also down, maybe because in a new reality where there's less trade, there wouldn't be as much need for them.

[Jeff Guo]

All right, Sally, so to recap, as we heard from Erica, the stock market overall is up. Some stocks are way up, but some of the specific companies that are down right now might be down because they could in some way be hurt by these potential tariffs.

[Sally Helm]

Correct. But there is actually one more market prediction that I want to tell you about, Jeff. Another sector that is down and this one is interesting to me because it exposes maybe a weakness of some of these market predictions. So after the election, a lot of renewable energy companies were down, like wind and solar, stuff like that.

[Jeff Guo]

I guess maybe that's not surprising because Trump was kind of this drill baby, drill type candidate. So you'd think he might undo some of the big investments President Biden has made in renewable energy.

[Sally Helm]

Right. Largely through the big climate law, the Inflation Reduction act, or the ira, which created all these subsidies and tax credits to help people buy solar panels and electric cars, also tried to incentivize companies to produce more of those things domestically. And President Elect Trump has suggested that he wants that law gone.

[Sonal Desai]

My plan will terminate the Green New.

[Ira Glass]

Deal, which I call the Green New Scam.

[Sonal Desai]

Greatest scam in history, probably.

[Robinson Meyer]

It's unclear whether by that he means the ira. And he has also promised to rescind IRA spending.

[Sally Helm]

Yeah, Trump wants to take back unspent IRA money. And that, by the way, is Robinson Meyer, the founding executive editor at Heat Map News. He covers climate really closely, so he was a good person to ask about whether this market prediction will come true. People seem to be trading on the idea that Trump might go through with it. But Rob told me the IRA could be hard to repeal because it is built such that the benefits of the law are spread out to a lot of companies and districts and voters. And so it's going to have a maybe surprising political coalition behind it.

[Robinson Meyer]

A lot of red states benefit from the IRA. So districts that voted for Trump in 2020 received three times more funding from the IRA than districts that voted for Biden.

[Sally Helm]

Yeah, like there's a lot of sun in the Sunbelt, Jeff. There's a lot of wind in the Plains. And so a lot of these new factories that the IRA helped spawn are in red and purple areas. Georgia, North Carolina, Texas. And once you have created a good manufacturing job in Georgia, like, people are going to fight to keep it. And so far we have seen some evidence that that is happening.

[Robinson Meyer]

Earlier this year, 18 House Republicans wrote to Speaker Mike Johnson and said, hey, stop saying you're going to repeal the IRA because it's really bad for us.

[Sally Helm]

That's interesting. I mean, it's a group that's sort of like widely known for its climate commitment.

[Robinson Meyer]

No, in fact, it's. I mean, this is not a very. This is a House Republican Caucus is not a very climate friendly group of people.

[Sally Helm]

Rob said if we keep seeing that kind of thing, plus voters and companies agitating to keep jobs and subsidies, then maybe the IRA will survive.

[Jeff Guo]

Interesting.

[Sally Helm]

Yeah. I mean, he thinks it's going to be a big fight. And, you know, the market's immediate gut reaction seem to be the IRA will lose that fight, which could turn out to be true. But of course, this is going to play out in the political arena, like it's not going to be decided by the traders. So I'm sure they will be watching closely and continuing to make their bets.

[Jeff Guo]

Totally. Sally Helm, thank you so much.

[Sally Helm]

Thank you, Jeff.

[Jeff Guo]

Now, it is not just specific stocks or industries or crops whose fortunes are rising or falling after the election. These past few days, the market has also been sending signals about the larger economy. Do the Wall street types think that Trump is going to make good on his promises to lower inflation? Do they think that the economy overall is headed in a good direction? We're going to decode all of that after the break. Alexi Horowitz, Ghazi here. Sure, subscriptions offer convenience, but are they bad for competition?

[Ira Glass]

When you're not canceling because you forget about it or it's difficult to cancel.

[Jeff Guo]

Those forces of consumers taking their business.

[Ira Glass]

To another product are blunted.

[Jeff Guo]

That's from our recent Planet Money bonus episode, my extended interview with Stanford economist Neil Mahoney. Listen with [e-mail] the code switch team.

[Erica Barris]

Spent Election Day talking to folks about how the outcome might impact them. It's a time capsule of people's hopes and fears before they knew the results.

[Ira Glass]

One way or another, there's a change coming. I wanted to vote for Trump, but I voted for her, gays for Trump. I cried this morning.

[Erica Barris]

I've been crying on and off.

[Art Hogan]

I'm terrified.

[Erica Barris]

Listen to Code Switch, the podcast about race and identity, from npr.

[Sally Helm]

Joe Biden's on his way out.

[Art Hogan]

Donald Trump's on his way back. Want to know what's happening as the presidential transition is underway? The NPR Politics podcast has you covered with the latest news and analysis.

[Erica Barris]

Listen to the NPR Politics podcast.

[Keith Romer]

This message comes from Wondery. Some of the craziest conspiracy theories are actually classified government operations. To hear more about these hidden truths, listen to Declassified Mysteries with Luke lamanna on the Wondery app or wherever you get your podcasts.

[Jeff Guo]

So far today, we've been mostly talking about the stock market, but now we are going to turn to a different market, one that gives us a glimpse into what finance types think is going to happen to the economy as a whole. I'm talking about the giant $28 trillion market for U.S. treasury bonds. And for that, I'm going to Bring in Planet Money host Keith Romer.

[Ira Glass]

Hello, Jeff.

[Jeff Guo]

So, Keith, treasury bonds, what a market, Am I right? Yes. So what's been going on there?

[Ira Glass]

So treasury bonds, as you know, they are basically IOUs from the US government. Whenever the government needs to borrow money.

[Jeff Guo]

Which it does, like all the time, right.

[Ira Glass]

It borrows it in the form of these IOUs. They pay a guaranteed amount of interest. And if you buy one and you change your mind, you can just sell it on to somebody else. This happens all of the time. The treasury market is a giant, giant, giant market. And once it became clear that Donald Trump was going to be the next president, lots of people decided to sell their Treasuries. The price for Treasuries went way down. Sonal Desai, who is the chief investment officer in charge of fixed income at Franklin Templeton, she told me this was.

[Art Hogan]

A big deal for the treasury market to move by this much in a very short period of time, that shows you a big move in sentiment. And that's what we saw. That's what happened this last week.

[Ira Glass]

10 year treasuries, which as the name suggests, mature over 10 years. On Wednesday, they had the biggest one day move in over two years. Now, the way people in bond world talk about this is there was a big increase in bond yields. Yields, they go up when prices go down, yada, yada, yada. But because it is a little easier to make sense of, we are going to be talking about bond prices today anyway. Sanal says the important thing here is not just how big that downward move in treasury prices was, it's what a move that size means.

[Art Hogan]

Now, all this is a question of what people believe is going to happen. And this is where I think it gets really quite interesting.

[Ira Glass]

Sanal says think of the treasury market as offering a prediction, a prediction of what the economy will look like in the future. When folks in the treasury market knew for certain on Wednesday that Donald Trump would be the next president, their picture of the future changed in two ways. Way number one was about inflation, right?

[Jeff Guo]

So Donald Trump talked a lot about inflation on the campaign trail, how he was going to bring down prices.

[Ira Glass]

But Sanal says when people sold off their Treasuries on Wednesday, it was partly a prediction that Trump's policies would not in fact bring inflation down, but instead would make inflation go back up.

[Jeff Guo]

And the logic for the sell off is if inflation is high in the future, then the value of your government IOUs goes down. Because when it's time for the government to pay back your IOUs, those dollars are worth less.

[Ira Glass]

Now, I asked an all what was behind why the treasury market thinks inflation will go up.

[Art Hogan]

What was the market looking at? I think the market was looking at two things. First thing was Trump is planning on cutting taxes. And here I'm talking about corporate taxes. The assumption is that cutting corporate taxes, taxes and reducing regulations will fire up the famous animal spirits, which will encourage corporations hire more, demand more people's wages. So there's this cascading effect that people hope will happen. And that is a part of what markets were reacting to.

[Ira Glass]

People looking forward to that cascading growth. That is part of what drove that big broad based jump in stocks on Wednesday. But Sanal says there is a flip side to that coin.

[Art Hogan]

Okay, you cut taxes, growth looks stronger. Unfortunately, when growth goes too quickly, too soon, typically it also helps inflation in the sense of keeping inflation up rather than bringing it down.

[Jeff Guo]

By the way, another source of inflation that people have been talking about is all of Trump's proposed new tariffs. Right? Yeah.

[Ira Glass]

No, that was interesting to me. Sanal actually didn't think Trump's tariffs were that big. A part of why the treasury yields moved. For one thing, even though the US obviously imports a lot of stuff, imports not that big a part of our.

[Art Hogan]

Economy, our GDP is so big, it's so enormous that the amount we import and export is actually a very small fraction of the total. So I'm not saying that there is no impact, I'm just saying it's not, to me, the main impact. This isn't to say that tariffs are a good thing. I don't want that to be the takeaway.

[Ira Glass]

And also, Sanal isn't totally convinced that all of the promised tariffs are actually going to become a reality. So the market, she says, is only pricing in some inflation from tariffs.

[Jeff Guo]

Okay. So the big treasury sell off is predicting inflation and the story behind that is potential tax cuts and maybe a little bit of tariffs.

[Ira Glass]

Exactly. So now we are going to turn to the second related, but kind of different prediction, which is about where the market thinks interest rates will go under Trump.

[Jeff Guo]

They're like cousins, you know, interest rates, inflation.

[Ira Glass]

Yeah, you can tell that they're related, but they're different and they lead different lives. Anyway, the simplest version of the sell off story is that markets think interest rates, cousin number two, will be high under a Trump presidency.

[Jeff Guo]

Uh huh. And if you think interest rates are going to go up, you're not going to want to hold on to your government IOUs anymore. Right.

[Ira Glass]

Remember, the IOUs, they pay interest. And so if I have an IOU that's paying me 5% interest. But I think next month, the government is going to start selling IOUs that pay 10% interest. I am not going to want to hold on to my 5% interest IOU anymore.

[Jeff Guo]

Right.

[Ira Glass]

I want to sell it so I can have my money ready to buy the sweet 10% interest IOU that's coming down the pike.

[Jeff Guo]

So I guess the interesting question is why the market thought interest rates are going to go up.

[Ira Glass]

Sanal says on this one, she thinks the markets were mostly reacting to the possibility of big budget deficits that could come as a result of all of those tax cuts Trump has proposed.

[Art Hogan]

Both candidates were talking about what I can only consider profligate fiscal policy.

[Jeff Guo]

So, like lots of government spending, and.

[Ira Glass]

It'S worth saying that Treasuries have actually been selling off little by little for weeks. But then when it became clear that Trump would be president, we had that giant drop in bond prices. Sanal says that is partly because deficits under Trump are projected to be even bigger than they would have been under Kamala Harris.

[Art Hogan]

We had three and a half trillion dollars from the Democrats, and we have conservatively, seven and a half trillion from the Republicans. You know, a trillion here, a trillion there. Pretty soon you're talking about real money here, because we're already running very, very large fiscal deficits. And if you need to borrow more money, it's going to cost you more.

[Ira Glass]

Sanal says this is just the law of supply and demand. Right. There are already trillions and trillions of dollars worth of US Treasuries out there in the world. And if the US Is going to pump out all of these additional Treasuries to pay its debts, we might at some point start to outpace the market's demand for all those Treasuries.

[Art Hogan]

If you have unlimited demand, it's cool. You can charge what you want to charge. But if you increase the supply and you haven't done too much on the side of demand, well, you know, the price is going to have to come down or the interest rate is going to have to go up.

[Jeff Guo]

We're going to have to start offering 10% IOUs instead of, like, 5% IOUs.

[Ira Glass]

I mean, hopefully neither of those, because both of those rates would be really high. But in any event, yes, higher rates.

[Jeff Guo]

Okay, so on Wednesday, all at once, the treasury market made this new prediction about what the economy will look like under a Trump presidency.

[Ira Glass]

Yeah, higher inflation and higher interest rates. But these predictions change all the time.

[Jeff Guo]

It's true every day. Another new prediction.

[Ira Glass]

Yeah, we are recording this podcast on Friday afternoon. Prices for Treasuries, they are still lower than they were on Tuesday, but they have already come back a lot since that giant sell off on Wednesday.

[Jeff Guo]

Also, soybean futures seem to have recovered. I guess we'll just check again on Monday to see what the markets think about any of this stuff then.

[Ira Glass]

Or check the week after that or the week after that. Who knows?

[Jeff Guo]

Yeah, and I think that's kind of one important thing to keep in mind as we've been doing all this market watching on today's show. The market is not omniscient. Markets change their minds all the time. They don't actually know what's going to happen in the future. They're just making educated and sometimes not so educated bets. But by watching how the markets place their bets, you can at least learn a little bit about what the people with money think is gonna happen. And that's worth something. This episode was produced by Sam Yellow Horse Kessler and Willa Rubin and edited by Martina Castro. It was engineered by Gilly Moon and fact checked by Sierra Juarez. Alex Goldmark is our executive producer. I'm Jeff Guo.

[Erica Barris]

I'm Erika Barris.

[Sally Helm]

I'm Sally Helm.

[Ira Glass]

And I'm Keith Romer. This is npr. Thanks for listening.

[Sally Helm]

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