The Trump administration is playing a dangerous stockmarket game

Subscribe to enjoy similar stories. The Trump administration has been extraordinarily blasé about falling stocks. “I can tell you that corrections are healthy, they are normal," said Scott Bessent, America’s treasury secretary on March 16th, in the government’s most recent shrug.

The stumble in America’s long stockmarket rally—the S&P 500 index is down by 8% from its all-time high in February—may have been prompted by Donald Trump’s enthusiasm for tariffs, but it has been exacerbated by the perception that the new administration is quite relaxed about the dip, and therefore likely to continue pursuing damaging policies. Mr Trump’s team is playing with fire. As markets have soared, and tech has made investing ever simpler, Americans have rushed into stocks.

At the end of last year households and non-profit organisations held $38trn in shares of listed firms. The value of their holdings has exploded, climbing by 128% over the past six years. All told, such holdings are now worth 1.7 times America’s disposable household income, which is more than twice the historical average and near the highest level on a record that stretches to 1947 (see chart).

A prolonged stockmarket slump would have profound implications, both for politics and the economy. The biggest danger is of a self-reinforcing downwards spiral between markets and the economy. According to a survey by the University of Michigan, in the first two weeks of March American consumer confidence dropped to its lowest in almost two and a half years.

This is weighing on stock prices. Meanwhile, through the “wealth effect", falling stock prices themselves weigh on households’ balance-sheets, and therefore on their spending. In 2019 Gabriel Chodorow-Reich of Harvard