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Stock Market Resilience Questioned Amid Trump's Shadow

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  Published in Stocks and Investing on Monday, January 12th 2026 at 9:38 GMT by The Globe and Mail

Monday, January 12th, 2026 - The resilience of the stock market continues to be a source of bewilderment for many economists and analysts, especially given the persistent economic interventions and unpredictable rhetoric of former President Donald Trump. Even nearly a decade after his initial term, Trump's influence and potential for disruptive action remain significant factors shaping economic sentiment. The question remains: how much longer can Wall Street maintain its detached optimism?

Throughout the 2020s, a peculiar phenomenon has unfolded. Despite frequent threats of tariffs, protracted trade wars with major economic powers like China and Europe, and direct, often critical, commentary directed at the Federal Reserve, the stock market, specifically the S&P 500, has largely defied gravity. Since 2017, the S&P 500 has witnessed a significant rise, exceeding 50%. This surprising divergence between economic anxieties and market performance has spurred considerable debate.

Several explanations have been proposed to account for this seemingly paradoxical situation. A key factor is the short-term focus of investors. While long-term geopolitical concerns simmer, the immediate economic landscape has, until recently, presented a reasonably positive picture. Corporate earnings, while experiencing fluctuations due to global uncertainties, have remained relatively stable. Unemployment rates have remained low, and the U.S. economy, despite a noticeable slowdown, has continued to show growth - albeit at a reduced pace.

The lingering effects of the 2017 tax cuts, which substantially reduced the corporate tax rate, have undoubtedly contributed to the positive market performance. The reduction provided a significant boost to corporate profits, benefiting shareholders. Furthermore, the Federal Reserve, under Jerome Powell, has historically, albeit sometimes reluctantly, adapted its monetary policy to align with Trump's directives, maintaining low-interest rates and easing financial conditions.

However, perhaps the most significant factor is the prevalent belief among investors that Trump's more extreme pronouncements are largely performative. Many perceive his threats as bargaining chips in trade negotiations or strategic maneuvers to gain political advantage, rather than genuine intentions to implement sweeping and damaging policies. This perception allows investors to 'discount' the potential impact of his actions, essentially assuming they won't fully materialize.

David Bianco, chief investment strategist at BlackRock, articulated this sentiment, stating that the market is implicitly assuming a limited escalation of trade wars, continued accommodation from the Federal Reserve, and avoidance of a recession. These assumptions, while seemingly self-fulfilling to date, represent a considerable degree of risk.

Yet, the foundation supporting this optimism is increasingly shaky. Geopolitical tensions, particularly in regions like the Middle East and with respect to China, have escalated. Trump's public statements have grown increasingly unpredictable, contributing to investor nervousness and prompting reassessments of risk tolerance. The possibility of significant policy shifts - reflecting a potential change in political leadership - has also injected uncertainty into the market.

Michelle Meyer, chief economist at Bank of America Merrill Lynch, cautions that the market's resilience is not inexhaustible. "The market has been remarkably resilient," she concedes, "but at some point, the chickens are going to come home to roost." She specifically warns that a sudden and drastic escalation in trade tensions or a significant geopolitical crisis could trigger a substantial market correction.

Looking forward to 2026, the risk profile appears elevated. While the memory of Trump's previous policies continues to influence investor behavior, the potential for unexpected actions, coupled with broader global economic instability, suggests that the current 'unsettled calm' may not last. The market's ability to continue ignoring the 'visible hand' of a figure like Donald Trump remains highly questionable, and a reassessment of these assumptions is becoming increasingly urgent.