Trump rally reversal may need policymakers' intervention, says BofA

by Sagarika Jaisinghani

A reversal of the S&P 500’s post-election rally would spark investor expectations for intervention by President Donald Trump to support the market, according to Bank of America Corp. strategists.

The benchmark has slipped almost 3% this month, in part on worries that Trump’s proposed tariffs would fuel a global trade war. It’s now just about 1% from its closing level of 5,783 points on Nov. 5, the day of the Presidential election. About half of S&P 500 members are now down since election day, according to data compiled by Bloomberg.

The Nov. 5 closing level is the “first strike price of a Trump put, below which investors currently long risk would very much expect and need some verbal support for markets from policymakers,” BofA’s Michael Hartnett wrote in a note.

The most likely policy response to a further retreat in stocks, bond yields and the dollar due to slowing US growth would be interest rate cuts from the Federal Reserve, followed by an accord with Saudi Arabia to reduce oil prices. The strategist also sees the possibility of faster US tax cuts or raising of the debt ceiling.

The most bullish outcome for risk assets would be if the “US starts making noises” about a potential trade deal with China, Hartnett said. Among the least-likely scenarios is Trump responding with more tariffs, he added.

The strategist had said earlier this week that the stock market was Trump’s “traffic light, it’ll tell him to go and stop.” He reiterated in the note that investors seem “suspicious” of the S&P 500’s trajectory after the benchmark had trailed global peers this year.