It seems like almost every day, the U.S. president announces something unexpected like tariffs, threats against key partners, or random policy changes. These announcements often shock the stock market, causing prices to drop temporarily before hopefully recovering.
My assumption is that until recently, these kinds of unpredictable actions were not fully priced in, which explains some of the recent market volatility.
Starting now, should we expect that active managers and investors will begin factoring in tariff risks and political unpredictability for companies exposed to foreign markets or “unfriendly” countries? If so, those companies would be riskier, and their expected returns should theoretically be higher.
The counterpoint is that U.S. presidents have historically taken unpredictable actions like abandoning the gold standard or going to war in Iraq so maybe these risks have always been partially priced into stock valuations.
Are we now entering a regime where the market fully prices in “irrational presidential behavior,” or is this just a continuation of historical political risk?