The S&P 500’s latest all-time high suggests investors aren’t unduly bothered by the prospect of democratic erosion under Donald Trump. Are investors complacent about political risk?
In 2023, credit ratings agency Fitch downgraded US debt, saying there had been a “steady deterioration in standards of governance over the last 20 years”. That “steady deterioration” is speeding up.
Under Elon Musk, the Department of Government Efficiency (Doge) is rapidly taking over federal infrastructure. Trump isn’t hiding his authoritarian tendencies, suggesting on social media that “He who saves his Country does not violate any Law.”
Some 1,500 people involved in 2021’s January 6th riots have been pardoned. Trump has not ruled out invading Greenland, wants to take the Panama canal, and has threatened to violate treaties with Canada and Mexico.
He has issued an executive order that “reins in independent agencies”, including the Securities and Exchange Commission (SEC) as well as the Federal Trade Commission, the antitrust regulator. The White House is also seeking more control over Federal Reserve activities, including banking regulation.
Meanwhile, “conspiracy theorists, incompetents, loons and an unelected phalanx of Muskovites” appear to be leading the US government, says Trump biographer and Bloomberg columnist Timothy O’Brien, who warns Trump “is not an actor playing at being an authoritarian”.
For now, markets appear unconcerned by questions of institutional resilience. CEOs, too, appear relaxed, with one measure of CEO confidence hitting its highest level in three years.
It pays to see the glass as half-full in bull markets, but risks are rising. Bank of America’s latest fund manager survey shows 89 per cent think US stocks are overvalued, further suggesting markets may be underpricing the cost of chaos.
