The Economic World President Trump Has Created, And What It Means for SPY Investors
If you own an S&P 500 index fund, or you’re thinking about it, you’ve probably felt a little whiplash lately. One day the market is up 1.6 percent, the next day it’s down 2.1 percent… and honestly, it’s exhausting.
That churning feeling in your stomach? It isn’t just you. It’s the economic world President Donald Trump has built since returning to the White House in January 2025.
And maybe the best way to understand it, really understand it, not just the headlines, is through a single ticker: SPY.
The SPDR S&P 500 ETF (SPY) is the most liquid, most heavily traded proxy for the U.S. stock market in existence, a $700 billion behemoth that tracks roughly 500 of America’s largest public companies. When SPY moves, the world pays attention. So let’s talk about what SPY is telling us right now.
Spoiler: it’s a story of stunning highs, gut-wrenching volatility, and an economy that’s splitting in two.
A Tale of Two Economies, Both Inside SPY
Here’s the thing about Trump’s second-term economy, it’s really two different economies wearing the same coat.
On one side, Wall Street and Silicon Valley are booming. The S&P 500 has been hitting all-time highs. In late April 2026, the index closed at a record 7,165.08 — a level that would have sounded absurd just two years ago. The Dow Jones Industrial Average even punched through 50,000 for the first time ever. When that happened, Trump posted on Truth Social: “Record Stock Market, and National Security, driven by our Great TARIFFS.”
On the other side?
Economists are calling it a “redneck recession.” Manufacturing is in recession. Construction is in a deep recession. Transportation and distribution, recession. Wholesaling, recession. Retail is hanging on by its fingernails.
Mark Zandi, chief economist at Moody’s Analytics, estimates that roughly a third of the U.S. economy is already effectively in recession. Jobs? In all of 2025, the U.S. added just 584,000 — compared to over 2 million in 2024. That’s the slowest year for job creation since 2003, barring actual recessions.
So when you look at SPY’s price chart and think “things must be going great”… you’re only seeing half the picture. The ETF is heavily weighted toward the mega-cap tech companies that are thriving, Nvidia, Apple, Microsoft, Amazon. Those firms have different fortunes than the small manufacturers and retailers getting hammered by trade policy.
Dean Baker, senior economist at the Center for Economic and Policy Research, puts it bluntly: “We have an economy with really just one dynamic sector, the tech sector.”
And that dynamic? It’s being fueled as much by artificial intelligence as it is by anything coming out of Washington.
Tariffs: The Shockwave That Keeps Hitting
If there’s one policy that defines the Trump economy, it’s tariffs.
Let’s rewind a bit. On what was dubbed “Liberation Day” in April 2025, Trump imposed a baseline 10% tariff on most imports, plus reciprocal tariffs targeting even political allies. For Chinese goods, the tariff rate eventually reached 145% — effectively bringing trade to a standstill.
The market reaction? Brutal.
Between election day and the end of April 2025, the cumulative negative impact of tariff-imposing decisions subtracted an estimated:
- $4.7 trillion from the S&P 500’s market value
- $2 trillion from the Magnificent Seven tech stocks alone
- $377 billion from the Russell 2000 small-cap index
But here’s where it gets interesting, and why investing during this period has been so psychologically hard. The market didn’t just fall and stay down. When Trump paused pending tariffs on April 9, market losses were sharply reversed. Then new threats came. Then more pauses.
This back-and-forth created something unprecedented.
Bloomberg Intelligence found that in 2025, SPY experienced 28 trading days where daily volume exceeded $600 billion — a record-breaking number. Most of these extreme-volume days occurred when tariff policies were announced. And here’s the pattern that emerged: about 70% of those ultra-high-volume days had negative returns, averaging roughly a 1% decline.
In other words, the market wasn’t just volatile, it was frightened. Traders weren’t absorbing bad news calmly; they were panic-selling in enormous volumes, then scrambling back in when the threats receded.
The problem didn’t stop in 2025. By early March 2026, SPY had already breached that $600 billion threshold seven more times. Volatility, as Bloomberg’s analysts put it, is no longer an occasional visitor, it’s a permanent resident.
If you’ve felt like checking your portfolio every single day (and maybe regretting it), now you know why. You weren’t imagining things. The ground really was shaking that much.
The Other Side of the Coin: Tax Cuts, AI, and Cheap Oil
So why hasn’t SPY completely collapsed under all this pressure?
Because Trump’s economic agenda isn’t just tariffs. It’s also a massive fiscal expansion, and that part of the story matters just as much for ETF holders.
In the summer of 2025, Trump signed the “One Big Beautiful Bill” — a sweeping tax cut package that, among other things, allows businesses to immediately deduct 100% of capital expenditures through accelerated depreciation. On top of that, the corporate tax rate, which was cut from 35% to 21% during Trump’s first term, is being discussed for further reduction to 20%.
The result? Goldman Sachs predicts that AI-driven productivity gains combined with tax reform will drive S&P 500 earnings per share to grow by 12% in 2026.
And here’s something that doesn’t get enough attention: oil prices have dropped significantly. When Trump took office, crude oil was trading around $80.63 per barrel. By February 2026, it had fallen to $62.53 — a 22.4% decline. Lower energy costs mean lower input prices for almost every company in SPY. That’s quietly been one of the biggest tailwinds for the market.
The administration has also been aggressively pushing deregulation. Financial firms expect a surge in IPOs and mergers and acquisitions in 2026. When companies feel freer to merge, go public, and expand, it tends to lift the entire equity market, especially the financial sector, which makes up a sizable chunk of SPY.
So in some ways, Trump’s economic world is like a tug-of-war: tariffs pulling growth down on one side, tax cuts and deregulation pushing it up on the other. The Congressional Budget Office confirmed this dynamic in its 2025 outlook, projecting that tariffs would restrain growth while tax cuts would boost it through capital investment.
The net result for 2025 GDP? The CBO forecast just 1.4% growth, down from its earlier 1.9% estimate. The IMF was slightly more optimistic at 1.8%, but still slashed its previous forecast of 2.7%.
Modest growth. High volatility. Record stock prices. It’s a strange, contradictory mix, but that’s exactly the environment SPY investors are living in.
Winners and Losers Inside Your S&P 500 Fund
Since SPY holds roughly 500 stocks across every major sector, the winners and losers aren’t just an academic exercise, they directly affect your returns.
Who’s Winning
- Big Tech / AI-exposed companies: Nvidia, Microsoft, Apple, Amazon. These firms have global revenue streams that partially insulate them from U.S.-specific policy chaos, and they’re riding the AI wave regardless of who’s in the White House.
- U.S. steel and domestic manufacturing: Tariffs explicitly protect these industries. Trump’s industrial nationalism favors companies that produce on American soil.
- Banks and financials: Higher interest rates (at least initially) boosted net interest margins. And the deregulation push is a direct tailwind.
- Defense contractors: National security rhetoric and geopolitical tensions have kept defense spending elevated.
Who’s Hurting
- Small caps (Russell 2000 / IWM): The iShares Russell 2000 ETF plunged about 15.5% in the six months following Trump’s election. Small companies tend to have less pricing power, thinner margins, and more domestic supply-chain exposure, meaning tariffs hit them especially hard.
- Import-dependent retailers and consumer goods: Companies that rely on Chinese manufacturing faced margin squeezes. Apple briefly fell below $170 in April 2025 on tariff fears before recovering above $250 later in the year.
- Autos, electronics, pharmaceuticals: All sectors caught in the crossfire of broad-based import duties.
The Big Picture
SPY’s heavy tilt toward mega-cap tech means the ETF has been shielded from the worst of the pain. Over the first six months of Trump’s second term, SPY lost only about 5.5%, not great, but far better than the 15.5% hit to small caps. And from the depths of the tariff-driven sell-off in April 2025 to the record highs of 2026, SPY has actually delivered strong returns for those who held on.
But that concentration in a handful of giant companies is also a vulnerability. If AI sentiment shifts, or if those firms face regulatory or geopolitical headwinds, SPY’s performance could deteriorate quickly, because where the big names go, the index follows.
Inflation, the Fed, and the Affordability Problem
You know what makes all of this even more complicated? Prices are still going up. The Federal Reserve’s 2% inflation target remains elusive. In late 2025, consumer price inflation was running at about 3%, practically unchanged from the start of Trump’s term.
Tariffs are part of the reason. The Yale Budget Lab estimates that the additional levies on imports increased consumer prices by roughly 1.3 percentage points. Companies have so far passed on only about half of those increases, meaning more are likely coming.
Meanwhile, Trump has been publicly pressuring the Fed to cut interest rates aggressively, even as inflation stays above target. And the national debt? The CBO projects debt held by the public will climb from roughly 100% of GDP to almost 120% by 2035.
Mortgage rates are still above 6%. Housing remains deeply unaffordable for first-time buyers. Consumer sentiment is fragile. Polls show even one-third of Trump’s own voters are disappointed with the lack of progress on lowering prices.
This matters for SPY because consumer spending drives roughly 70% of U.S. GDP. If households pull back, squeezed by sticky inflation, high borrowing costs, and job fears, corporate earnings eventually feel it. And earnings are what ultimately drive stock prices over the long run.
What Should an Investor Actually Do?
Okay, deep breath. We’ve covered a lot of ground. Tariffs. Tax cuts. Volatility records. A split economy. Inflation.
Here’s the part where we get practical, human to human.
1. Don’t Let the Headlines Drive Your Decisions
Remember those 28 extreme-volume days in 2025 when SPY investors were panic-selling? Bloomberg’s analysis of SPY’s entire history, going back to 1993, shows something crucial: the best-performing days and the worst-performing days tend to cluster together. If you sell after a big drop, you’re very likely to miss the sharpest rebounds that follow. And missing just a handful of the best days can dramatically reduce your long-term returns.
2. Understand What You Actually Own
SPY is not “the economy.” It’s 500 large-cap U.S. companies, heavily weighted toward tech. As of 2026, a handful of AI-exposed giants drive a disproportionate share of the index’s returns. That’s been great recently, but concentration brings risk. If you’re relying on SPY for retirement, consider whether you need broader diversification (international stocks, bonds, commodities, or equal-weight S&P 500 funds).
3. Dollar-Cost Averaging Is Your Friend
In a high-volatility regime, which the Bloomberg data strongly suggests we’re living in, investing a fixed amount on a regular schedule smooths out the wild swings. You buy more shares when prices are low and fewer when they’re high, without having to guess which day is which.
4. Watch the Sectors
The chasm between winners and losers inside SPY is unusually wide right now. Tariff-sensitive, import-dependent companies are struggling. Domestically focused industrials, financials, and AI-exposed tech are thriving. A sector-level awareness, even for passive index investors, can help you understand why your portfolio is moving the way it is, which is half the battle against emotional decision-making.
5. Keep Some Dry Powder
Volatility isn’t just risk, it’s also opportunity. If SPY experiences another tariff-driven sell-off like April 2025, having cash on hand to buy at lower prices has historically been rewarding. But, and this is the hard part, you have to be willing to deploy that cash when everyone around you is panicking. That’s easier said than done.
Conclusion: The Economy Is a Human Story
It’s easy to get lost in the numbers, $4.7 trillion here, 50,000 on the Dow there, 28 record-volume days. But behind every data point is a real person.
The autoworker in Michigan whose plant is cutting shifts because parts from Canada got more expensive. The young couple in Ohio putting off buying a house because mortgage rates won’t budge below 6%. The tech worker in Austin watching their 401(k) hit new highs while their neighbor in manufacturing worries about layoffs.
The economic world Trump has created is contradictory by design. Tax cuts and tariffs pulling in opposite directions. Wall Street celebrating while Main Street struggles. SPY hitting records while small-cap stocks languish. It’s a world where the aggregate numbers look impressive, record-high indices, strong bank profits, AI euphoria, but the lived experience for millions of Americans tells a different story.
For an SPY investor, the path forward isn’t about picking sides or making bold predictions. It’s about being informed enough to stay calm when the ground shakes, because in this economy, the ground will keep shaking. Trump’s policy style, with sudden announcements, reversals, tariff escalations, and 90-day pauses, almost guarantees continued volatility.
SPY has survived every economic regime since 1993. It survived the dot-com bust, the financial crisis, COVID, and now Trumponomics 2.0. But how you experience those periods, whether you panic-sell at the bottom or steadily accumulate through the chaos, depends less on SPY and more on your own mindset.
Take a breath. Have a plan. And remember: the scariest headlines often come right before the best rebounds.