Stock Market Unfazed by Trump's Ominous Warnings to Iran | Vanity Fair

It was around 11 a.m. on Tuesday morning when CNBC was airing a segment on the new foldable iPhone, and anchor Sara Eisen deftly pivoted to some news from Washington.

“Let’s talk about tonight, this deadline that President Trump has set, 8 p.m., [he] has threatened to destroy a civilization,” she said. “How does an investor process that? Is it a bigger upside risk or downside risk?”

The moment spoke to our distinctly American way of waging war: Bombs are dropped on faraway lands while we debate the effect that the carnage might have on Wagyu beef prices here at home.

What’s new about this latest war in the Middle East, though, is how indifferent financial markets seem to be to its consequences. As Trump issues threats to bomb an entire nation into “the Stone Age” and the world weathers the biggest oil-supply shock since the 1970s, markets have each time fluttered, then recovered.

Once upon a time, a geopolitical crisis could prompt a sell-off. One Wall Street insider who spoke with Vanity Fair recalls an incident from September 2001 wherein a legendary trader by the name of John Mulheren watched the first plane hit the World Trade Center from his office window and screamed, “They’re fucking bombing us, sell the S&P! Sell the S&P!”

But the dynamic is different this time. On Easter Sunday, Trump praised Allah and threatened to commit war crimes. “A whole civilization will die tonight,” he warned Tuesday, “never to be brought back again.” Democrats called for invoking the 25th Amendment to remove Trump from office. Some Republicans who’ve staunchly supported Trump condemned his threats. Former allies called him a mad king, and leaders from London to Beijing braced for what sounded a lot like the threat of nuclear apocalypse.

“They’re fucking bombing us, sell the S&P! Sell the S&P!”

And how did markets respond to this fresh crisis? The S&P 500 dipped 0.5%. By the time markets closed in New York, hours before the deadline that Trump said would “probably” mark the death of an entire civilization, the S&P was in the green.

One executive at a multibillion dollar hedge fund, speaking to Vanity Fair on condition of anonymity, says he watched with shock on Monday as the Iran “will die” Truth Social post ran across the screen of his Bloomberg Terminal.

“At first I was like, Okay, I’m going to discount the odds that he’s talking about doing something extremely drastic, because there’s also the TACO viewpoint—the guy always chickens out. But it came into my mind: Is he talking about nuclear weapons?”

“No one’s trading off the purported factual content of what the president says,” says Robert Armstrong, the Financial Times columnist who coined the TACO trade theory holding that Wall Street tends to assume Trump will always back down from his most extreme, market-destroying policies. “Because everyone knows at this point that he’ll say any damn thing at any damn moment.”

“No one’s trading off the purported factual content of what the president says.'

The hedge-funder says that after their initial shock, traders began to reckon, once again, with how much Trump’s words should be taken seriously. “He’s willing to say anything in the interest of a negotiation,” the financier says. “He’s not actually willing to do it.”

“It’s kind of like the inverse Teddy Roosevelt,” he goes on. “Talk loudly and carry a small stick.”

On Wednesday, the day after Trump postponed the apocalypse, stocks soared. Oil prices plummeted. But the ceasefire isn’t much of a ceasefire: Israel bombed Lebanon on Wednesday in the deadliest attack since the start of the war and Iran said the Strait of Hormuz would remain closed. Meanwhile, Washington and Tehran seemed to disagree wildly on both the terms of the ceasefire and the starting points for a lasting peace deal.

No matter. On Thursday, markets continued to soar. “It’s not a bull market or a bear market, it’s a Trump market,” says Yale professor Jeffrey Sonnenfeld, though he adds there are signs that financial markets are “starting to call Trump’s bluff.”

Traders are trapped, like all of us, in Trump’s world. It’s a bizarro twist on the “boy who cried wolf” dynamic, Armstrong says. “At what point do the villagers say, ‘This kid’s full of shit’ and he gets eaten by the wolf? Well, if the boy who cried wolf had the nuclear codes, the villagers would be forced to keep listening to him forever. The president is an office of terrible power, and that will never stop being true.”

That’s made life difficult for the denizens of Wall Street, even as some cash in on the war-time volatility. “This is a trader’s wet dream,” says the Wall Street insider. “Volatility is really good if you’re a trader. I guarantee Goldman Sachs and all the trading desks are making money hand over fist.”

“This is a trader’s wet dream.'

But it also means “more headaches, more hours, more nerves,” the hedge-funder says. “If you can figure out the number of Xanax prescriptions per trader, that’s definitely gone up.”

This new dynamic also presents a moral dilemma for a cohort not known for its high ethical standards. If Trump responds only to markets, backing down when the Dow takes a dive or Treasury yields spike, inoculating stock prices against his erratic behavior could mean emboldening him. Full speed ahead.

Putting aside the moral quandary, appeasing Trump carries with it pecuniary risks: “Emboldening him now only increases the odds of a negative tail-risk later,” says the financier. “Because the more you embolden this kind of behavior, you don’t punish the behavior, the fewer consequences there are for this kind of behavior, the higher the odds are that in the future, [Trump’s] going to do something that rips your face off.”

Regardless of the outcome of the war, traders are adapting their portfolios to focus on the short-term because no one knows what Trump will do next—not even his own White House.

“Only President Trump knows what he will do,” White House spokeswoman Anna Kelly said before the Tuesday deadline, “and the entire world will find out tomorrow night if bridges and electric plants are annihilated.”

Wall Street, it seems, was never in doubt.

“I wouldn’t put too much stock in these short-term moves,” the financier says, echoing a sentiment that has kept markets cruising along amidst the chaos. “For all we know, we’re back at war by Saturday.”

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