Overview
The article discusses the concept of the "Trump Trade," which suggests that traders should consider going long on the S&P 500 with a target of 7,800. The author argues that political signals, particularly from former President Donald Trump, can create a favorable environment for stock market growth, especially as midterm elections approach.
Market Dynamics
The author reflects on past market behaviors, particularly during periods of tariff threats and subsequent policy changes. For instance, in April 2025, the S&P 500 experienced a significant drop due to fears of reciprocal tariffs, but rebounded sharply after Trump encouraged buying during a market low. This pattern of volatility followed by recovery is highlighted as a recurring theme.
The Framework of the Trump Trade
The article outlines a simple framework based on incentives that drive market behavior:
- The Threat: Trump announces a negative policy, such as tariffs.
- The Reaction: Stock prices drop in response to the threat.
- The Pivot: Trump retracts the threat, often using it as leverage.
- The Result: Stock prices soar as confidence returns.
This cycle has been observed multiple times, reinforcing the idea that Trump's comments should be viewed as market signals rather than mere political rhetoric.
Targeting 7,800
The author posits that when Trump explicitly states his desire for the stock market to rise, it significantly reduces the likelihood of policies that would negatively impact the market. This creates a "floor" for stock prices. The article cites various institutional forecasts, with several major banks targeting the S&P 500 at or above 7,600 by year-end.
Trading Strategy
The article concludes with a trading strategy that emphasizes patience and timing:
- Wait for the “Tweet”: Monitor for new tariff threats or geopolitical statements.
- Watch the Flush: Allow the market to react and for weak hands to sell off.
- Buy the Pivot: Enter the market when the narrative shifts from negative to positive.
The author encourages traders to focus on the underlying incentives driving market movements rather than getting caught up in the noise of daily market fluctuations.