{"id":388297,"date":"2026-01-04T20:46:10","date_gmt":"2026-01-04T20:46:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/388297\/"},"modified":"2026-01-04T20:46:10","modified_gmt":"2026-01-04T20:46:10","slug":"trump-says-we-have-the-hottest-economy-markets-tell-a-different-story","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/388297\/","title":{"rendered":"Trump Says We Have the \u201cHottest\u201d Economy. Markets Tell a Different Story."},"content":{"rendered":"

\"\"<\/a>(Photo by Timothy A. Clary \/ AFP via Getty Images)<\/p>\n

MANY OF US HAVE BEEN raising hue and cry about the irreversible damage Donald Trump has wreaked on the economy. Tariffs<\/a>! Corporate shakedowns<\/a>! Destruction of research institutions<\/a>! Deletion of data<\/a>! Politicization of the Federal Reserve<\/a>! Alienation of our allies<\/a>! Socialization of private companies<\/a>!<\/p>\n

And of course, the collapse of the rule of law<\/a>.<\/p>\n

All of these things should be terrible for the U.S. economy, especially in the long term. And yet to date, the stock market has seemingly shrugged it all off<\/a>.<\/p>\n

In fact, markets look somewhat ebullient. In 2025, the S&P 500 grew a solid 16 percent\u2014far better than the average year, and better than many forecasts, particularly in the wake of Trump\u2019s Liberation Day tariffs.<\/p>\n

So what\u2019s going on? Why aren\u2019t investors pricing in all these risks?<\/p>\n

Some of it may be that they believe there\u2019s a huge, sustainable Trump boom just around the corner. It didn\u2019t come by the end of 2025, but perhaps it\u2019ll arrive this quarter . . . or next quarter . . . or the end of 2026<\/a>, per the latest goalpost-moving forecasts from Commerce Secretary Howard Lutnick.<\/p>\n

But there are other ways to interpret what\u2019s going on. None of them are particularly assuring:<\/p>\n

U.S. markets actually aren\u2019t doing that great, when compared to our global competitors.<\/p>\n

The lion\u2019s share of growth here in the United States\u2014in both financial markets and hard economic data\u2014is driven by a single sector: A.I . . .<\/p>\n

. . . which looks an awful lot like a bubble right now.<\/p>\n

I find these explanations to be more persuasive than the hope that a new economic golden age is about to dawn. And to understand why, it\u2019s worth recapping why you should worry about the long-term damage from Trump\u2019s policies in the first place.<\/p>\n

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LET\u2019S START WITH something that should go without saying: Democracy and the rule of law are good for their own sake. But they also matter quite a bit to the U.S. economy.<\/p>\n

A country that protects property rights; that has free capital markets; that has a stable and predictable regulatory regime; where all citizens are equal before the law; where individuals don\u2019t fear being expropriated by the state without cause; and where private contracts<\/a> can be enforced regardless of political connections is generally a better place to do business. All these features are among the reasons the United States has long been the richest country on earth. It\u2019s also why we have attracted so much foreign capital.<\/p>\n

When property rights aren\u2019t protected and the justice system operates to reward friends and punish enemies, doing business is harder. People don\u2019t have the certainty they need to invest here, or study here, or start businesses here.<\/p>\n

\u201cIf businesses can\u2019t predict what the law will be next year or even next month they will pause,\u201d Nick Bloom, an economics professor at Stanford, told me. \u201cNo firm wants to invest to suddenly discover the government is now taxing you twice as much or has banned your product.\u201d<\/p>\n

In fact, there was a Nobel Memorial Economics Prize awarded in 2024<\/a> on \u201chow institutions are formed and affect prosperity.\u201d Here\u2019s how the Nobel committee, in press materials released with the award, summarized the laureates\u2019 findings: \u201cInstitutions that were created to exploit the masses are bad for long-run growth, while ones that establish fundamental economic freedoms and the rule of law are good for it.\u201d<\/p>\n

Much of that prize-winning research looks at developing countries. But lately we have plenty of cautionary tales here in the United States.<\/p>\n

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Today, companies must fritter away precious resources finding ways to bribe appease a mercurial president, via gilded trophies, fake accolades<\/a> and unpopular movie sequels<\/a>. Or they waste their energy scheduling and canceling and then uncanceling shipments<\/a> of imported goods, depending on Trump\u2019s latest tariff tweets. Or maybe they\u2019re holding off on investment entirely, because there\u2019s too much uncertainty<\/a>.<\/p>\n

This affects even the sectors Trump is ostensibly trying to help, such as energy.<\/p>\n

\u201cWith all the changing regulations a bunch of wind-farm investments are massively lossmaking and all investment has stopped,\u201d Bloom said. \u201cThis will not only damage wind farms, but other energy investments as related industries fear being next. If you are thinking of building a big coal station, sure the Trump administration is in your corner today. But maybe next month Trump decides he prefers oil or gas, or the next administration thinks you should be taxed twice as much. So not surprisingly even coal plants are not rushing to invest.\u201d<\/p>\n

THE HARD ECONOMIC DATA are somewhat dated and backward-looking, especially right now due to the recent government shutdown. What data we do have are not super encouraging, given that three of the past six months saw job losses<\/a>. But we do have real-time data from stock markets, which are supposed to be forward-looking.<\/p>\n

The White House has been quite eager to tout that data because U.S. markets appear to be up\u2014a fair bit. Aides often crow about new market highs. And Trump often<\/a> claims that the United States is \u201cthe hottest country anywhere in the world,\u201d and that all foreign leaders<\/a> admit it.<\/p>\n

But the numbers appear less impressive when you look a little closer. In reality, U.S. markets have been relatively laggard since Trump took office, when compared to the rest of the world<\/a>.<\/p>\n<\/p>\n

As you can see, non-U.S. markets grew by nearly twice as much as U.S. markets did last year, in data from the financial services company MSCI.<\/p>\n

By other metrics, too, the United States has been losing its premium against other countries. The dollar is slumping against other currencies<\/a>, and in 2025 had its biggest decline since 2017 (the first year of Trump\u2019s prior term). As Bloomberg\u2019s Robert Burgess pointed out<\/a>, every major currency appreciated against the U.S. dollar in 2025.<\/p>\n

The American economy may have entered 2025 as the \u201cenvy of the world<\/a>,\u201d according to The Economist, but it exited somewhat worse for wear.<\/p>\n<\/p>\n

Then there\u2019s the question of what drove growth here in the United States. The answer is, overwhelmingly, artificial intelligence.<\/p>\n

When it comes to the \u201creal\u201d economy, we have data through only the first nine months of 2025. During that time, investment in AI-related categories (such as data center structure investment or software) accounted for about a third of overall real GDP growth<\/a>.<\/p>\n

When it comes to stock markets\u2014which take us through the end of 2025\u2014the numbers are even more lopsided. A handful of mega-cap, AI-intensive tech stocks known as the \u201cMagnificent Seven<\/a>\u201d (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) currently dominate the market. This is visible in multiple metrics, including capitalization and R&D<\/a>.<\/p>\n

Mag 7 stocks also rose about 26 percent in 2025, with chipmaker Nvidia alone rising nearly 40 percent. Collectively these seven stocks alone accounted for nearly half of all market returns last year.<\/p>\n<\/p>\n

In other words, the AI boom seems to be propping up much of the rest of the economy.<\/p>\n

\u201cThe general consensus among economists and folks I speak to is that the AI boom has offset the uncertainty and tariff damage,\u201d Bloom says. \u201cIt\u2019s like unexpectedly inheriting $100,000 in the same week as you get hit by a surprise $100,000 tax bill\u2014they are both big shocks but end up canceling out.\u201d<\/p>\n

Ironically, one reason the AI sector has experienced this growth is that it has been relatively insulated from some of Trump\u2019s destructive behavior, since he has carved out huge tariff exemptions for AI-related imports<\/a>. To much controversy, he has also allowed Nvidia to sell its powerful H200 chips to China<\/a>.<\/p>\n

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Finally there\u2019s the question of how sustainable all this AI investment is.<\/p>\n

It is true that AI is expected to restructure much of the economy, including the white-collar labor market. So it makes sense that companies are spending a lot of money investing in AI. But there seems to be a lot of bad money chasing after good. Many investors are betting that AI will be a winner-take-all market; if that\u2019s the case, you might see one champion emerge and suddenly everyone else pulls their funding simultaneously, leading to a collapse of those other companies and the popping of the industry bubble.<\/p>\n

When and if that happens, we may have some pain to reckon with.<\/p>\n

In historical terms, stocks look pretty frothy<\/a> right now. One measure that suggests this is the \u201ccyclically-adjusted price-earnings\u201d ratio<\/a>, maintained by Yale economist and Nobel laureate Robert Shiller. The \u201cCAPE\u201d compares the past decade of corporate earnings to current stock market prices. When the ratio is high, it\u2019s often a sign that stocks are overvalued. Right now it\u2019s over 39, the highest level it\u2019s been since the dotcom bubble.<\/p>\n<\/p>\n

As for all the longer-term damage Trump has wreaked across the rest of the economy, it may also be the case that investors know there are problems but are waiting for someone else to end the party first. This is generally how bubbles work: people continue blowing them bigger while there\u2019s still money to be made, even if everyone knows the pop may be coming someday. Former Treasury Secretary Bob Rubin has likened<\/a> the current situation to October 1987: For years before the \u201cBlack Monday\u201d crash, market conditions were considered to be \u201chighly in excess and nothing happened in the markets.\u201d<\/p>\n

As a result, Rubin said, \u201cpeople stopped listening.\u201d Until one day, with no obvious, specific triggering event, markets just imploded.<\/p>\n

I also asked Simon Johnson, one of the recipients of that 2024 Nobel for research on democratic institutions and prosperity, why the business community still seems relatively unperturbed by the degradation of rule of law here. He offered a more ominous analogue.<\/p>\n

\u201cOur findings are for long-term growth; plenty of authoritarians oversee growth spurts (e.g., from commodities) and then it collapses,\u201d he replied. \u201cWhen the tide is rising, even leaky boats rise. When the tide goes out . . . see Suharto\u2019s Indonesia 1997\u201398.\u201d<\/p>\n

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\u2014 The New Year began with a delicious serving of TACOs: In 2026, Trump has already chickened out of his tariffs on pasta<\/a> and furniture<\/a>.<\/p>\n

\u2014 It\u2019s probably not a good sign that Trump\u2019s assistant attorney general for civil rights used a slur<\/a> for people with disabilities. Alas, this is not<\/a> the<\/a> only<\/a> indicator that this administration scorns those with special needs.<\/p>\n

\u2014 Trump\u2019s cabinet is hiding from Congress<\/a>, which says as much about the administration as it does Congress. For example, would Republican lawmakers not like to hear what OMB Director Russ Vought<\/a> has to say, given that he has stolen their constitutionally granted power of the purse? I know I would.<\/p>\n

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