Chapter 1: What is the main topic discussed in this episode?
This is Andrew Ross Sorkin, the founder of Dealbook. Every year, I interview some of the world's most influential leaders across politics, culture, and business at the Dealbook Summit, a live event in New York City. On this year's podcast, you'll hear my unfiltered conversations with Gavin Newsom, the CEO of Palantir and Anthropic, and Erica Kirk, the widow of Charlie Kirk.
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From The New York Times, I'm Natalie Kittroff. This is The Daily. Tariffs are at their highest rate in nearly a century. The labor market is weakening. Over and over again, Trump has meddled with corporate America and the country's most important economic institutions.
And yet... The S&P at an all-time high. Same for the Nasdaq, by the way. The stock market has kept on going up and up and up. Markets continue to hit all-time highs.
All of this despite lingering uncertainty caused by President Trump's tariff agenda. Today, my colleague Joe Renneson explains why, at least until now, the market has stayed so strong in such volatile times. and what we know about how long this can really last. It's Monday, October 20th. Wow. You brought a Bloomberg terminal printout.
In case you ask me what companies have done well since tariffs, then I'll be prepared.
It's beautiful. I just caught a glimpse of it. And that orange, that bright orange letter. It's very distinctive, isn't it? Yeah, you can't miss it. Yeah. Well, Joe, welcome to the show. Thanks for being in the studio.
Thanks so much for having me.
So we're coming to you because there has been this question on my mind for a while now, and I think it's been on a lot of people's minds. And the question is, what is up with the markets? Because it seems as though every few weeks or so something happens, whether it's a new Trump policy, whether it's weak jobs data, whether it's new tariffs.
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Chapter 2: Why is the stock market rising despite economic uncertainty?
Why hasn't there been a stronger reaction in financial markets? Surely there is an economic consequence to these things. And so it is an important question, and it's an important question as well because it's important to understand what the signal is from the stock market. You know, markets are still doing very well. Should we take that as a sign that things are okay?
Maybe we're being hyperbolic and we're being worried about nothing. And so if that is the signal markets are sending, we should listen to that. Equally, if there's another explanation, we should understand that explanation as well.
So you're saying the signals the market sends matter.
Yeah. What do you mean by that? You know, believe it or not, a majority of Americans are actually invested in the stock market, either through retirement plans or pension plans or the rise of retail investors, day trading that kind of picked up during the pandemic.
And then while the stock market might not be the economy, and maybe it doesn't feel like it has this kind of direct effect on most Americans' lives, the companies in the stock market are huge employers. They employ thousands and thousands of people. They are responsible for the paychecks of many, many Americans. And if those companies start to do worse or start to come under pressure...
That tends to affect how they spend money in the economy, whether that's on labor or infrastructure projects or whatever it happens to be. So there is this kind of relationship between markets and the economy, even if they don't always send exactly the same message. And they're also forward looking. So markets are constantly trying to understand where we go, not where we are now.
And so they're a really good barometer, in a sense, of where the many, many investors that are putting money to work every single day, buying and selling stocks, bonds, currencies, and other things, where do they see things headed? And again, at the moment, from a very cursory look at the financial markets, one would think that people think we're on a reasonably safe path.
Okay, well, let's get into the signals that we are getting from investors right now. It feels like maybe one of the most helpful recent examples of that kind of barometer that you're talking about was during the initial market reaction to Trump's tariffs back in the spring. The market, the stock market, and the bond market reaction in particular were initially negative.
Many people saw that as a strong signal to the administration. The administration pulls back. It's not surprising that the market recovered once Trump retreated from those initial really high tariffs. But what was surprising to me was that the markets kept going up and up, even though Trump did eventually raise tariff rates.
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Chapter 3: What factors are contributing to the stock market's resilience?
So coming into this year, we're in a pretty good place. There was some enthusiasm around Trump being elected, a sort of more pro-business president, at least perceived to be a more pro-business president, and a sort of unleashing of growth and opportunity in the US for big business. And then the tariffs hit. And whilst these were expected, they came through a lot more punitive, a
And so there was a sharp reaction. And the reason that sharp reaction kind of hit almost more than the tariffs themselves, almost more than sort of what it said about the direction of travel for the administration, was that it was unexpected. Yeah. Markets, investors hate uncertainty. They can't price uncertainty. It's impossible to price what you don't know.
Whether the economy could sustain through such a shock, whether the employment market would come under strain, whether inflation would rapidly rise. And so you ended up with this kind of paralyzing of business and financial markets because they just didn't know what was going to happen. Now, where we are now...
Sure, there's still a lot of uncertainty in the world, but we at least roughly know what the base rate on tariffs is going to be. We roughly know, we at least have some data on what the income from tariffs looks like to the government.
Which is considerable, right?
Yeah, much higher than people were anticipating initially. We've seen inflation not get out of control. Yes, there's pressure on inflation, but it's not got out of control. There's an awful lot that we've just had a little bit of time to kind of analyze, to get our head around, to a point where there is at least less uncertainty than there was six months ago.
So it sounds like what you're saying is we moved from this really unpredictable environment to a relatively, at least, more predictable one. And that with that shift, some of the anxiety has fallen away.
Yeah, exactly. Certainly some of the big causes of consternation and uncertainty have eased somewhat. And it isn't just tariffs. We also have the big, beautiful bill, the tax cut that went through. It's an extension of a tax cut, but it still is a tailwind for the market. Fed looks like it's now lowering interest rates. Those lower interest rates will also offer a tailwind to the market.
It reduces borrowing costs. It broadly reduces costs for companies in the stock market.
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Chapter 4: How do tariffs and government policies affect market reactions?
As in, aren't there concerns about how much trust we can have in the ability of the most important economic institutions in this country to do their jobs, like the Fed, the Bureau of Labor Statistics? These have both been attacked by Trump. He's moved to fire a Fed governor. He fired the head of the labor agency. What's the impact of all that?
There is absolutely concern around these sorts of things. Whether that gets reflected in markets is a little bit different. Markets aren't moral. They don't have a system of governance that they are wedded to. What they fundamentally care about is that policy, especially monetary policy coming from the Federal Reserve... is consistent with the sort of economic fundamentals that we're facing.
In authoritarian governments, that can sometimes become dislocated, where the politicians are making those decisions, not the policymakers. And then you can end up with economic policy that doesn't fit the economy you have, and that can lead to some very unpleasant results, let's say. Sure. We're not in that situation.
We're in a situation where, yes, the administration is putting a lot of pressure on the Federal Reserve. They're putting pressure on Federal Reserve independence through the attempt to fire Lisa Cook.
The Fed governor.
Yeah. But at least for now, the policy that they are pushing through is consistent with the economic fundamentals we're facing. So the fact that Jerome Powell is now lowering interest rates is more a coincidence that that's what Trump wants as well. Because, you know, for a large chunk of this year, Trump wanted lower interest rates and it was not the right time and Powell didn't want to do that.
Now they're aligned. And so whether that's a question of independence or lack of independence, if the policy fits the market, then the market will be okay.
You're saying that the markets don't see the Fed's move to lower interest rates as a response to Trump pressure. They see it as a response to the economic signals.
Yeah.
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Chapter 5: What is the significance of signals from the stock market?
Yeah, and the risk of being uninvested in this environment is, like, you can fall behind very, very quickly as an investor. Maybe it's worth sort of looking back to the dot-com period, the internet revolution, the computing revolution that kind of taken hold earlier. Those things are still with us. The technologies are still here.
Artificial intelligence isn't going to be going away anytime soon. The difference is which companies are going to actually still be around in five or ten years. Is it going to be a case of one of the many companies that went bust in 2000, 2001? Or is it going to be a case of being Amazon?
which was also valued in similar ways that were also off the charts back in 1999, that company is still here and it would have made you an awful lot of money to be invested over those 25 years.
One of the concerns that comes up with this, however, is that because of the size of these companies and because of how well they've been performing more recently, they're also able to then mask a lot of the pain that sort of sits just beneath the surface of the stock market.
It's quite possible to have a large chunk of the S&P 500, for example, down on a day where some idiosyncratic news about Nvidia or Amazon that lifts those stocks 1-2% can outweigh moves in the opposite direction amongst a large chunk of the index. So it kind of comes back to the message that the market is sending us.
On any given day that the S&P 500 rises, maybe that is a verdict on the administration's policies. Maybe that is a verdict on the economy at large. But maybe it's also just artificial intelligence. And if you're only looking at that high-level number, whether the S&P 500 has risen or fallen, then you may be missing some of the underlying concern that still sits beneath the surface.
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