Throughout his campaign and first 100 days as President, many of Trump’s proposals have been indisputably controversial. From the 11% decline of the Mexican Peso immediately following the election to the 25% increase in U.S. construction materials, it may seem clear that Trump’s presidency has resulted in increased volatility in the global financial markets. This is surprisingly not the case, as Trump’s administration has resulted in the most stable equity markets since President Kennedy (1961-63) . However, the fundamentally radical nature of Trump’s platform raises speculation as to how the markets have maintained this stability. His most recent point of contention results from his intended $3.6 trillion cut in government spending over the next decade in the following departments :
Radical claims such as this, alongside the general consensus of underperformance in his first 100 days  have led to recent discussions involving impeachment. Political uncertainties like this typically result in slower market growth and increased investment in Treasury Bonds or in commodities such as gold. Despite this uncertainty, the S&P 500, DJAI, and the NASDAQ have all shown significant growth since the November election, as shown in the graphics below. The growth achieved across each major equity market index suggests investors have confidence in the Trump administration’s economy.
S&P 500Dow Jones
The performance of U.S. financial markets alongside the 3.97%  growth in GDP is reassuring for most investors. However, the bond market may tell a different story. 10-year Treasury yields have remained consistently low, with a decline of 3.1% over the last 6 months. The yield curve is a common indicator used for predicting recessions in the U.S., and should therefore be evaluated alongside the apparent growth of the U.S.’s capital markets. In simple terms, the slope of the yield curve is defined as the difference between a short and long-term rate of U.S. Treasury issues . Generally, increasing short-term rates indicate that the economy is slowing down. Eventually, if these short-term rates rise high enough, the yield curve may invert and lead the economy into a recession. To strengthen the validity of this indicator, it is important to highlight that an inversion of at least 100 basis points or more has predicted 6 out of the last 7 recessions . By viewing the graph below, it may become clear that a major inversion is currently underway in the U.S. Treasury Bill market.
The graphic above features a comparison between short and long-term U.S. Treasury Bills, where green demonstrates the rates of 3-month T-Bills and blue demonstrates the rates of 10-year T-Bills. It is clear that there has been a significant increase of short-term T-Bill rates, from 0.5% to nearly 1.0% since March. On the other hand, the 10-year T-Bill rates have seen a sharp decline from 2.7% to 2.25% during this time. These shifts have immediately followed Trump’s proposed budget cuts made on March 16th. Referring back to the yield curve, the trend of this inversion of short and long-term rates may be a clear sign that the U.S. economy is heading towards a recession.
What does this mean for the global financial markets? The stability of these markets will be dependent on the decisions that President Trump makes over the next few months. Although globalization has facilitated economic development, it has also resulted in increased interdependencies between the global financial markets. The implications of this became clear in the 2008 financial crisis, when countries such as Iceland reported bankruptcy as a result of the U.S. subprime mortgage crisis. If the U.S. is to suffer a financial crisis, the entire global financial system will suffer. Despite the fact that the U.S. has maintained stable GDP growth rates and bullish trends in their market indices, it will be important to proceed with caution when evaluating the strength of the U.S. economy and the global markets as a whole.