Traders Watch for Trump Put After Lutnick Hints at Relief

(Bloomberg) — As President Donald Trump’s tariff plan dragged US stocks lower, the man who for years pointed to the equity market as his barometer of success remained quiet.

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That is, at least, until the market closed with its worst two-day slump since December. Then a glimmer of light emerged from the Trump administration: Commerce Secretary Howard Lutnick told Fox Business Network the president may offer a pathway for tariff relief for Mexico and Canada on Wednesday.

Investors responded immediately, fueling an after-hours rally in stock-index futures and a 1% gain in the biggest ETF that tracks tech shares. S&P 500 futures were up 0.9% at 05:00 a.m. in New York on Wednesday, while shares in Tesla Inc. were up 2.9% in premarket trading with the stock set to bounce from a four-month low hit on Tuesday.

That’s not to say that a policy reversal is imminent — the Trump administration has sent mixed signals in the past. And it comes in stark contrast to Trump’s statements earlier, when he threatened to raise levies on Canada commensurate with that country’s retaliatory tariffs.

But Lutnick’s comments coming on the heels of another market selloff underscore the idea that Wall Street strategists expect Trump to be attuned to the mood on America’s financial markets, and potentially adjust policy accordingly.

Trump has been “pretty open about there’s going to be some short-term pain for long-term gain, but there is a point where that short-term pain is gonna get to be too much,” said Art Hogan, chief market strategist at B. Riley Wealth. “It certainly feels like he will pull back on things. I don’t know if that’s today’s business, but it’s certainly on the short term horizon.”

The thinking is that the US president’s penchant for using the stock market as a report card meant any policy that rattled investors would cause him to quickly ditch those plans. Various Wall Street firms guessed how much pain Trump could tolerate in the S&P 500 Index before retreating. That index level became known as “the Trump put,” in reference to a put option.

Bank of America Corp. strategists had thought the first strike price of the Trump put was the S&P 500’s closing level on Election Day, “below which investors currently long risk would very much expect and need some verbal support for markets.”

And that’s almost precisely where the S&P 500 closed Tuesday, though not before careening well past it in intraday trading. Part of the reason for concern was the president has been significantly less focused on the stock market in his second term in office than his first, so it’s difficult to gauge how much the selloff is weighing on him.

Less Chatter

During his first term, Trump tweeted 156 explicit mentions of the stock market, 60 of which were in the first year alone, according to Alexander Altmann, global head of equities tactical strategies at Barclays Plc. This time around, Trump has only mentioned the stock market once since November out of an analysis of 126 social media posts on Truth Social.

“I personally believe that any sort of ‘Trump put’ in equities remains meaningfully (out of the money) lower,” Nomura cross-asset strategist Charlie McElligott wrote in a research note Tuesday. “Clients are dynamically hedging and pressing this short right now, with almost nothing he could say right now to solve this unless he completely backed down on policy.”

So far, the president has appeared unfazed by investors’ angst. US Treasury Secretary Scott Bessent expressed confidence in President Trump’s expansive plans to tariff foreign nations despite the stock market.

“With the China tariffs, I am highly confident that the Chinese manufacturers will eat the tariffs — prices won’t go up,” Bessent said. “With Canada and Mexico, I think we’re in the middle of a transition, and as you mentioned, Honda moving to Indiana is a great start.”

This isn’t exactly what happened with Trump’s tariffs during his first administration, according to economists. A 2019 working paper by the National Bureau of Economic research found that “the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018.”

Some Wall Street pros suspect it will take a more dramatic move in the S&P 500 to get Trump to flinch. JonesTrading’s Dave Lutz says the Trump put may be below 5,500, down from 6,045 on Inauguration Day.

Need A Correction

“That’s when the media will start rolling headlines about the stock market being in a correction — 10% off highs,” he said. “Those headlines should get the President’s attention.”

Trump has imposed 25% tariffs on all Mexican imports and most Canadian ones — except for energy products, which face a 10% rate. He also doubled his levies on China to 20%, while 25% tariffs on steel and aluminum imports are due to take effect next week.

In his speech to a joint session of Congress late Tuesday, the president repeated a pledge to impose reciprocal levels of tariffs on foreign nations on April 2.

While Lutnick’s comments created some positive sentiment in financial markets, caution is warranted because it’s what the president says that matters most, according to Brendan McKenna, a strategist at Wells Fargo in New York.

“I’ve come to realize that any commentary that does not come directly from Trump should not be traded on or trusted right away,” he said. “So as of now, I would still demonstrate caution and lean toward a more risk off sentiment.”

The bottom line is, with the US economy still holding strong and stock valuations expensive, investors shouldn’t expect Trump to come to their rescue if shares continue to tumble — at least for now.

“Regardless of whether Trump, or any president, uses the stock market as a scoreboard, that doesn’t change the fact that the market will be driven more by macro forces as opposed to one individual,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “Clearly, there was relatively high conviction that the tariffs on Canadian and Mexican goods would not take place. Now that that idea has been put to bed, markets have to face reality which, chiefly, is that uncertainty will dominate for the foreseeable future.”

–With assistance from Carmen Reinicke and Ruth Carson.

(Adds morning gains in futures, Tesla stock in 3rd paragraph)

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