Trump shifts focus for the election? Wall Street falls from former "darling" to a "scapegoat" of policy

Trump Administration Shifting Wall Street from “Ally” to “Opponent” The Trump administration is turning Wall Street from an “ally” into an “opponent.” The president, once viewed by the financial sector as a supporter, is now introducing a series of policies that have caught investors off guard in response to concerns about midterm elections and voter living costs. According to a report from the Wall Street Journal on Wednesday, Trump has rolled out several restrictive measures targeting the financial industry within the past week, including blocking large investors from buying homes, proposing a cap on credit card interest rates, and announcing limits on executive compensation and stock buybacks. These moves signal a clear shift in White House policy priorities—away from last year’s market-friendly policies like tax cuts, spending reductions, and tariff relaxations, toward prioritizing the interests of ordinary consumers. Most startling of all is the Justice Department’s criminal investigation against Federal Reserve Chair Jerome Powell, which Powell described as an intimidation tactic to force rate cuts. This move prompted JPMorgan CEO Jamie Dimon and other bank executives to publicly defend the Fed, highlighting the tensions between the government and the financial sector. Treasury Secretary Besant's comments to bankers last April are now coming true: "For the past forty years, Wall Street has become unprecedentedly wealthy... For the next four years, it’s Main Street’s turn." White House spokesman Kush Desai stated that repeated record highs in the stock market and real wage growth demonstrate Trump’s ability to “unlock historic prosperity” for both consumers and investors. Financials Under Pressure as Markets Move to Wait-and-See Mode Last Friday evening, Trump called for temporarily capping credit card interest rates at 10%, leading shares of major credit card issuers and network service providers to drop on Monday and Tuesday. Stocks of Citigroup, American Express, Capital One, Mastercard, and Visa fell from 4% to just over 7% during this period. Plans to block large investors from purchasing single-family homes also hit the share prices of two major landlords of single-family houses and Blackstone Group, which owns a smaller competitor. However, these stocks have since recouped some losses. Still, overall market indices haven’t reflected much concern. Investors have grown accustomed to Trump’s reversals on many ideas, and several of these proposals would require congressional support. House Speaker Mike Johnson suggested on Tuesday that Trump’s credit card interest rate proposal faces a tough road in Congress. Peter Boockvar, Chief Investment Officer at One Point BFG Wealth Partners, commented: “The credit card proposal may not happen—nor the restriction on institutional home buying. So the market is in a wait-and-see mode.” Dan Ivascyn, Chief Investment Officer at bond giant Pimco, advised investors to “expect surprises and adjust their portfolios accordingly.” Pimco has already adjusted its portfolio, including buying more non-US issued bonds. Brad Golding, a fund manager at New York hedge fund Christofferson Robb & Co., said: “Investors thought policy uncertainty would magically disappear after the April 2025 tariff event. Now we see that the midterm elections matter more than bank profitability and market stability.” The US will hold midterm elections in November this year. Policy Consequences Uncertain, Industry Impact Spreading The investigation into Powell immediately drew criticism from former Fed and Treasury officials as well as lawmakers, including Senate Banking Committee member, North Carolina Republican Thom Tillis. This could hinder Trump’s ability to get Powell’s successor confirmed. JPMorgan’s Dimon and Bank of New York Mellon CEO Robin Vince both defended the Fed on Tuesday in calls discussing quarterly bank results. Dimon said that political interference with the Fed would lead to rising inflation and interest rates, rather than achieving Trump’s goal of lowering rates. In fact, the investigation could even encourage Powell to remain as a Fed board member after his term as Chairman expires later this year. Other proposals may also have unintended consequences, which may explain the mild market reaction. Industry groups warn that capping credit card interest rates could limit access to credit for low- and moderate-income consumers. Boockvar pointed out: “Preventing institutional investors from buying homes to rent sounds good, but it could negatively impact families who want to live in a house but can’t afford to buy one. Also, it could hinder homebuilders from bringing new housing supply to market.” Trump’s push for affordability could impact other industries beyond finance. The administration has hinted at plans to lower U.S. gasoline prices for consumers by adding Venezuelan oil to the market. Lower oil prices would help drivers but could impact energy company profits. The government says more affordability proposals may be announced at next week’s World Economic Forum, which Trump is expected to attend. Despite the unsettling news, Wall Street analysts are still looking for reasons to be optimistic. On Monday, Morgan Stanley told clients that the Trump administration’s efforts to prioritize housing affordability could benefit certain consumer-related stocks. If the government provides incentives to homebuilders, encouraging them to boost housing supply, these companies could see improved earnings. Risk Reminder and Disclaimer The market carries risks, and investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their specific circumstances. Invest accordingly at your own risk.