Baby boomers hold a lot of the wealth in the U.S. through stocks and their homes, which could make them pivotal to President Trump’s next moves on the policy front. – MarketWatch photo illustration/iStockphoto
Investors watching stocks sink in recent weeks haven’t gotten much sympathy from the White House, even after President Donald Trump declared that “America’s decline is over” in his inaugural address in January.
Instead, Trump — who in November was described by one economist as America’s “most pro-stock-market president” ever — has sent shock waves through Wall Street by giving priority to tariffs over “pro-growth” aspects of his agenda and claiming he’s not even looking at the market tumult.
That stance surprised retail investors and put Wall Street on edge, with both groups wondering how bad things might need to get before the Trump administration would consider a détente on tariffs or reconsider the scope of cuts to federal agencies and jobs.
“It’s probably caught people off guard,” said Jim Baird, chief investment officer at Plante Moran, “if you were expecting a redo of Trump’s first term.”
To start 2025, the focus from Trump officials has been more on pushing through policy priorities to reshape U.S. trade and the economy, and less on markets.
The recent stock-market correction, defined as a drop of at least 10% from a recent peak, may not be anything out of the ordinary. But if signs of significant economic slowing emerge or market conditions worsen dramatically, Baird thinks a Trump pivot would take shape. “But I don’t think there is any way to know that right now,” he said.
The S&P 500 index SPX in mid-March joined the Nasdaq Composite Index COMP in a correction as Trump’s tariff fight rattled Wall Street and as consumer confidence dropped.
Looking ahead, Wall Street expects to slog through a difficult patch, particularly if worried families and businesses end up spending less, which could slam the brakes on the economy.
Against that backdrop, talk has emerged about the Fed potentially dusting off its own “put,” or rescue playbook. In the past, the central bank has cut rates sharply and used other tools, like buying bonds, to help prop up the economy and markets.
Strategists at BofA Global declared the Fed put “alive and well” in a Wednesday note to clients, adding that the central bank appeared more focused on growth risks than on a recent pickup in inflation. “Worried policymakers are good for risk assets,” Yuri Seliger’s credit-strategy team wrote.
With half of all spending in the U.S. now driven by top-earning households, according to Moody’s Analytics, the big worry for the economy this time around would be a sustained drop in the stock market that slashes wealthy people’s consumption habits.
The “wealth effect” is magnified in this cycle by top earners fueling half of all spending — and with it the U.S. economy. – Moody’s Analytics, Leuthold Group
“It’s pretty shocking stuff,” said Doug Ramsey, chief investment officer at the Leuthold Group in Minneapolis. “That’s a secular move that had been happening prior to COVID and this market surge in the last two and a half years, but really turbocharged.”
He added: “There’s no doubt that the stock-market increases have contributed to that.” The S&P 500 has gained more than 20% in each of the past two years.
Higher asset prices can contribute to the “wealth effect,” the notion that people spend more when stocks or home values rise. Most homeowners locked in ultralow mortgage rates during the pandemic as home values skyrocketed, which provided families with a buffer and a pile of home equity to tap if needed as inflation surged.
“The equity market is important because it has the wealth effect for baby boomers,” Tracy Chen, a portfolio manager with the global fixed-income team at Brandywine Global, said in an interview.
Although she thinks there isn’t a risk of an immediate recession, volatility isn’t likely over either, she said, given that Trump has circled April 2 as a deadline for potential “reciprocal tariffs.”
Trump on Friday signaled that he might be open to some “flexibility” on tariffs ahead of next month’s deadline. The S&P 500 narrowly avoided a fifth straight week of losses on Friday, gaining 0.5% for the week, according to Dow Jones Market Data.
With equities largely avoiding major pullbacks in the past two years, investors have grown accustomed to the stock market adding to their wealth, not subtracting from it.
The pullback in 2025, however, has unnerved people, including older people who have been closely monitoring actions by Elon Musk’s so-called Department of Government Efficiency as it attempts to cut services and staff at federal agencies.
“I can’t say it’s a blip on the screen,” said Jim Keenan, founder of Keenan Private Wealth Management in New York, about his recent conversations with clients. “To me, politics is moving everything.”
Keenan said his clients are baby boomers who have been with him for decades. “Everybody’s nervous watching the news and getting more and more upset,” he said. “It’s like a deer in the headlights.”
Some clients, however, have been switching to asset-preservation mode from asset appreciation, he said, including looking to move into bonds and dividend stocks.
Others have been rethinking big expenses, he said, including whether to put off redoing a kitchen. “I don’t think on the ground people are stopping spending, but they are thinking of it.”
The S&P 500 ended the week down 7.8% from its prior peak in February, while the Nasdaq was almost 11.9% lower from its December record and the Dow Jones Industrial Average DJIA was 6.7% off its record close, according to Dow Jones Market Data.
