Trump Confronts a Struggling America

The Mechanics of the Rally and the Weakened Independence of the Fed

The rebound of the American markets is surprising, first and foremost, by its intensity. As Serge Pizem, Managing Director of Swiss Life Private Management, points out, the months of September and October, historically volatile, eventually boosted Wall Street. The catalyst is clear: the Federal Reserve has initiated a cycle of rate cuts due to a combination of a severely weakened job market and political pressures from the White House. This monetary easing has provided massive support to tech stocks, which were already buoyed by the rise of artificial intelligence.

The S&P 500 has consequently gained 16.3% since the start of the year, but this performance rests on a dramatic concentration. If you exclude the « magnificent seven, » their influence on the index overshadows everything else: the S&P 493 shows only a 9% increase. Meanwhile, gold has surged, long-term interest rates have stabilized, and the dollar has stopped its decline after the drop in the first half of the year. The environment is thus favorable for risky assets, also supported by strong earnings growth. American corporate profits are expected to rise by 11.1% this year, well above the 9.9% anticipated in the spring.

However, this reassuring outlook conceals an institutional risk. In May 2026, Donald Trump could appoint an ally to head the Federal Reserve. The central bank's independence would then be significantly reduced, with a Fed likely to allow inflation to persist, stable yet high, around 3%. This scenario echoes the early days of 2022 when a sharp rate hike triggered turmoil in both bonds and stocks. For investors, the question is no longer whether this risk exists, but rather when it might materialize.

The Mood of the Country Shifts: An Economic Divide with Political Consequences

While markets appear to be dancing on the edge of a volcano, the real economy is sending considerably less enthusiastic signals. Serge Pizem highlights a profound dichotomy between affluent Americans and the working class. The former continue to consume, thereby mechanically supporting growth, while the latter are facing job losses and financial strain. The rise in auto loan defaults clearly illustrates this growing fragility.

Interestingly, these very modest households make up a significant portion of the Republican electoral base. According to the expert-cited data, 60% of Americans currently view Donald Trump's economic policy as poor. This harsh judgment has resulted in three consecutive electoral defeats in New York, New Jersey, and Virginia. Beneath the apparent strength of the labor market lies a harsher reality: working America is struggling to make ends meet and growing impatient.

This social malaise could become a macroeconomic factor in its own right. If the Fed were to become more accommodating under political influence, it risks exacerbating the inflationary pressures already affecting the most vulnerable. Investors are thus worried about a vicious cycle: weakened households, slowed consumption, price tensions, and potential market corrections. In an environment where global growth, revised by the IMF to 3.2% for 2025, largely relies on the American engine, this internal fracture could weigh more heavily than anticipated.