How Trump is trying to fool the stock market

Are you surprised by the stock market’s recent melt-up? All the economic news seems to be bad. And the political even worse. Yet stocks keep hitting record highs. Especially in the US.

Well, what if I told you it’s all a mirage? An illusion designed to make you believe share prices are going up.

How do I know?

Because I predicted it, seven months ago…

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The case for a Trump stock market
melt-up is strong

24th January 2025|Nick Hubble

The American stock market is dangerously overvalued – and optimism about the US economy under newly inaugurated President Trump is ignoring the vast challenges ahead.

But that doesn’t mean US stocks can’t rise from here. It’d be what’s known as a “blow-off top”. That’s a last gasp of optimism featuring a euphoric, irrational rally in stocks… before the reckoning.

President Trump might even have a strategy to fuel such a market melt-up: devaluing the US dollar.

There are several ways in which a falling US dollar props up international trade, GDP growth and asset prices in one fell swoop… for a while at least.

When it comes to stocks, it’s fairly simple. If the US dollar is worth less, then stocks are worth more in terms of those dollars. And so their prices go up.

The easiest way to think of this is to consider the gold price. When the US dollar loses purchasing power, it buys less gold. Which means a higher gold price. The same is true for all other assets too, including stocks.

What about trade and GDP growth? How does a weaker dollar support them? In much the same way that inflationary monetary policy can provide a boost, however short-lived.

If the US sets about weakening the dollar by easing monetary conditions and other countries ease too, then the net result is a global monetary print-fest. The US dollar might only decline by a little, but global monetary conditions could ease a good deal, supporting asset prices.

You could think of the value of the US dollar as having a monetary-policy-like effect on global trade and asset values. A higher dollar is like tighter monetary policy. Devaluing the dollar is like cutting interest rates.

It’s not just the US that wants a cheaper dollar

A cheaper US dollar would boost trade and economic growth around the world. So the effort to devalue the dollar is likely to receive support from other governments and central banks. The US dollar is now so strong that it is disrupting trade and financial systems across the globe.

In fact, there is some evidence that the US bond market instability over the past few months was caused by existing attempts to devalue the US dollar.

International central banks and governments sold US bonds and the corresponding dollars in foreign exchange markets to try to prop up their own currencies. This caused US bond yields to rise.

If it is the best explanation for what’s behind the moves, then it hasn’t been successful. The US dollar continued to rally… until this week.

Could a change of government in the US end the US dollar bull market?

A year ago, the new Treasury Secretary Scott Bessent explained to his Hedge Fund partners and clients why Trump would surprise the world and weaken the US dollar:

“Trump will pursue a weak dollar policy rather than implementing tariffs. Tariffs are inflationary and would strengthen the dollar – hardly a good starting point for a US industrial renaissance. Weakening the dollar early in his second administration would make US manufacturing competitive. A weak dollar and plentiful, cheap energy would power a boom. The current Wall Street consensus is for a strong dollar based on tariffs. We strongly disagree.”

With the US dollar strengthening significantly since he wrote that analysis, the administration may now feel compelled to attempt implementing their plan – or at least try to.

I have to say I’m sceptical whether the new US administration can devalue the US dollar. During interviews and confirmation hearings, Bessent has been notably vague on the specifics of how such a strategy would actually be executed.

In my view, the policy requires action from the US central bank, the Federal Reserve. And let’s just say the incoming government and the central bank have a difficult relationship…

Worse still, devaluing the dollar risks stoking inflation in the US and, if other countries resist such weakness, worldwide.

But let’s presume that the US, with cooperation from its central bank and international counterparts, succeeds in pushing down the dollar in 2025.

The question then is what a devalued US dollar would do to the financial markets we invest in.

The evidence is quite clear. You can expect a stock market rally… for a while at least.

No doubt it’ll become known as the Trump Bull Market, for obvious reasons.

How do we know this? Well, it worked last time.

Trump used the same policy ploy when he became president in 2017. The US dollar index plunged during his first year in office. US stocks soared as a result. The gold price rose. Global growth and trade rebounded. It was deemed a great success. And not just by Trump.

If we really are on the cusp of another devaluation of the US dollar, and you are willing to speculate on a blow-off-top, it’s time to buy stocks.

The Trump Bull Market may have begun already

Only a few weeks ago the world was panicking about bond markets. Their rapidly rising yields were beginning to undermine stocks at last.

Since then, there has been a remarkable reversal. Bond yields dropped and stocks jumped. The FTSE 100 even hit an all-time high. Why? Part of the story is that the US dollar index fell. Everything became worth more in terms of dollars.

Is this a sign of what’s to come in 2025 as stocks melt up?

Although risks remain, it is compelling evidence that the trade would work if Trump succeeds in bringing the dollar down.

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Sure enough, the US dollar index peaked in the same month I published that analysis – the same month Trump took over.

The DXY fell from 110 to as low as 97 since. And the US stock market has been on a tear as a result. The bull market has been so fast it even makes the tariff tantrum or April look like a blip, in hindsight.

My subscribers at Strategic Intelligence Australia bought US stocks during the dip in April based on the analysis above. It was the largest haul of stocks I’ve ever recommended in one go.

And for the first time in about 15 years, I invested my own money in the stock market during the April crash too.

We’ve captured the impressive rally since. But it’s not over yet. Trump is planning to trash the dollar much further in the second half of the year. Spiking stocks ever higher. So, care to join us in profiting from this trend?

Regards,

Nick Hubble,
Editor, Strategic Intelligence Australia