Since Donald Trump took office, US indices have fallen sharply. A fall that doesn’t seem to worry the current administration. On the contrary, it defends the idea that its policies, while painful for the markets in the short term, will prove beneficial in the long term. A pattern reminiscent of the Reagan presidency.
Since Donald Trump entered politics in 2015, the parallel with Ronald Reagan has often been drawn. Firstly, because Donald Trump started out with a slogan: “Make America Great Again”. A slogan borrowed from Ronald Reagan, who himself used it in his 1980 campaign. Secondly, because the policies pursued by Donald Trump during his first term were similar in many respects to those of Reagan.
Today, even though Donald Trump’s second term seems to be moving in a different direction, the figure of Ronald Reagan is once again being invoked. In an interview with NBC on Friday, Treasury Secretary Scott Bessent used the example of the Reagan presidency to explain his approach to the financial markets, focused on the long term and not the short term: “Who knows how the market is going to react over the course of a day, a week? What we’re looking for is to build long-term economic fundamentals for prosperity”.
If you look at the evolution of US indices during the Reagan presidency, this is pretty much Scott Bessent’s ideal pattern. Between November 1980 and November 1982, the S&P500 lost 25%. Then, over the following 6 years, the index gained 180%. In the short term, this benchmark implies that the current administration isn’t that sensitive to falling stocks. Or at least that’s the message Scott Bessent wants to send.
The difference with the Reagan period is that the beginning of his mandate corresponded to a recessionary phase, following the Fed’s action. At the time, to combat inflation, the Fed, led by Paul Volcker, raised interest rates to unprecedented levels. They reached 19% in 1981. As a result, the US economy went through two official periods of recession (declared as such by the National Bureau of Economic Research): the first from January 1980 to July 1980, and the second from July 1981 to November 1982.
The other major difference is that the Reagan period marked the beginning of a phase of liberalization and deregulation, which enabled globalization as we have known it for the past 40 years. An era that Donald Trump’s measures appear to be closing.
But in what the Trump administration is implementing, there is a real sense that their policies will be painful in the short term, but winning in the long term. For Scott Bessent, the market downturn is therefore a difficult moment to get through: “What we saw with President Reagan […] is that there was turbulence at the time, but he stayed the course, and we’re going to stay the course”.
