Capital Economics says the financial market strains visible today - notably in global bond markets and a wobble in equity prices - are not yet severe enough to produce the kind of policy reversal investors call the "Trump put." In a research note authored by Chief Markets Economist Jonas Goltermann, the firm compared present conditions with the market turmoil seen last spring during the episode dubbed "Liberation Day."
The note argues that, by several measures, the current environment remains materially less acute than the events that led to a broad retreat in asset prices and an ensuing policy reaction. Key observations in the note include:
- The 30-year U.S. Treasury yield has climbed to its highest level since 2007, but the pace of increase has not matched the rapid move observed last spring.
- Swap spreads have not widened substantially, limiting one barometer of systemic stress.
- The U.S. dollar has been trading largely consistent with interest rate differentials, rather than showing large, disorderly moves.
- Option-implied volatility has risen, yet it remains well below the panic-driven peaks recorded during last April's turmoil.
Capital Economics also noted an important distinction in the drivers of higher yields: current increases appear to reflect expectations of tighter monetary policy rather than shifts in the term premium. The firm interprets this as evidence that the credibility of U.S. economic policy is not under the same level of question as it was during the earlier episode.
Another salient point in the note is the condition of the equity market. The S&P 500 sits near its record highs, a stark contrast with the roughly 20% drawdown that occurred last April and ultimately helped trigger a policy response. That difference in equity market performance is central to the firm's view that investor pressure is not yet at the level that would induce a full-scale policy retreat.
Capital Economics also flagged a behavioral dynamic complicating the assessment: the widespread belief that a market rout would prompt a retreat by the administration may itself be muting investor concern about extreme outcomes. The research note concludes that because current stress markers are less pronounced and because of that implicit investor confidence, a larger and more severe sell-off would likely be required to activate what market participants refer to as the "Trump put."