Bessent Gets His Way For The ‘Wrong’ Reasons

Now, though, not only has The Donald’s choice of social media platform changed, his favourite asset has too, with the Administration instead seemingly focused on where the 10-year Treasury yield trades.

In fact, Treasury Secretary Bessent has, since his nomination, outlined a few market views, namely – a weaker USD, lower Treasury yields, and lower oil prices. Thus far, he’s getting his way.

Though the market may be moving in Bessent’s favour, one would argue that these moves are not taking place for the ‘right’ reasons. Instead of market confidence in Trump’s de-regulation, protectionist, deficit slashing agenda, all three of the aforementioned market shifts since Inauguration Day reflect something much simpler – mounting fears over the state of the US economy.

In recent weeks, data has increasingly surprised to the downside – the S&P services PMI fell to a 25-month low last month, while the ISM manufacturing survey painted an undeniably stagflationary picture, with the headline metric propped up by a surge in imports as firms attempt to front-run tariffs. Meanwhile, consumer confidence has taken a battering, with the Conference Board’s index notching its biggest MoM decline in over three years in February, as the UMich’s sentiment metric fell to its lowest level since the election. Market confidence, clearly, has also been severely dented, with the S&P 500 now trading around 7% below the mid-February record highs.

The question, then, remains whether or not a ‘Trump put’ does indeed exist. Increasingly, I am of the view that it does not, particularly with these declines in business, consumer, and market confidence having largely resulted in the Admin ‘doubling down’ on the hawkish rhetoric – on trade, and geopolitics – as opposed to even tentatively rolling the pitch for a policy pivot.

In many ways, though, it is not the policy itself that is roiling financial markets, but the flip-flopping nature of key Administration figures, including the President, when it comes to said measures being announced.

Recent tariffs on Canada and Mexico are a great example here. Having, on Monday, said that there is “no room left” for a deal to be done to avoid said tariffs, Tuesday saw Commerce Secretary Lutnick note that, in fact, those tariffs could be rolled back just a day later. In short, the noise/signal has gone off the charts.

This is, obviously, creating an environment that is both highly uncertain, and highly volatile, making it next-to-impossible for businesses, or market participants, to plan ahead with any conviction. Essentially, one must ask how market participants can accurately price risk, and discount a future policy path, when the man at the top doesn’t actually have a concrete one? The short answer, they can’t!

With this in mind, recent market moves begin to make a lot of sense. Stocks have slipped as participants broadly de-risk their portfolios, and ‘buying the dip’ transitions to ‘selling the rip’ amid a re-rating lower of growth, and earnings, expectations. Those lower growth expectations hence translate into lower Treasury yields, with haven demand helping things along nicely. The dollar also rolls over as the idea of ‘US exceptionalism’ fades, and Stateside growth ‘catches down’ to the RoW. This, in turn, sours the demand outlook for crude, compounding headwinds for the black stuff, as Trump screams ‘drill baby, drill!’ and OPEC+ turn on the taps once more.

Unless, and until, the present degree of uncertainty begins to lift, momentum behind the aforementioned defensive positioning is only likely to continue. While Bessent may be getting the market moves he wants, a renewed pick-up in economic momentum will be necessary to prevent the ‘short-term pain for long-term gain’ strategy simply becoming one of prolonged pain.