If you find following the news stressful, imagine being a stockbroker.
Several times a month, a headline comes out about something President Donald Trump said or did — threaten to invade Greenland, announce new tariffs, try to fire a member of the Federal Reserve board — and the stock market reacts wildly.
Traders call it “headline risk”: the possibility that a surprising news report will trigger a panicky sell-off on Wall Street that will usually subside once everyone has a chance to read past the headline.
While headline risk has always been a possibility, it has become more common in Trump’s second term as he dominates the daily news cycle with brash statements and unprecedented attempts to assert power.
But while the president has made the stock market more volatile on an hour-by-hour basis, he doesn’t seem to have affected the underlying mood among traders on the fundamentals of the American economy. Stock prices are still trading at or near their all-time highs. News headlines may cause temporary freak-outs, but the fear doesn’t last. Even oil prices — which usually stay high during a crisis — have quickly dropped back to normal after every scare.
On CNBC this week, Trump pointed directly at the disconnect, saying he was “surprised the stock market hasn’t dropped more” given geopolitical uncertainty, and adding that in a worst-case scenario he would have expected “a 20% drop in stocks and oil at $200 a barrel.” The implication was clear: Political expectations of disruption are not matching market pricing.
What used to be multiday price swings are now one-day blips.
When headlines about a conflict break — particularly when they’re tied to the Middle East or broader escalation risk — futures dip, oil prices spike and volatility rises. But in Trump’s second term, the durations have shortened. What used to be multiday price swings are now one-day blips.
As Bloomberg analysts have said, “investors are looking past the war … and focusing on market fundamentals.”
Reuters analysts often frame the same pattern as rebounds despite war risk: Sell-offs are “short-lived,” even with high geopolitical uncertainty.
The tone across financial media has become almost procedural. Jettison risky assets, then reassess, then reverse.
That repetition has produced a kind of informal market consensus: The risk of a massive geopolitical shock is real, but nothing serious is going to happen unless tensions over Iran or tariffs escalate into some kind of long-term disruption of the world market. In short, the market sees Trump as a nuisance, but not a threat.
The short-term volatility has created opportunities for fast money, what traders still describe as “animal spirits.” By remaining calm when the market quickly reacts to news, a trader can make a big score. It was traders, after all, who coined the term TACO, or “Trump Always Chickens Out,” to describe his tendency to make apocalyptic threats and then back down.
Recommended
“Buy the dip” has become a reflex rather than a strategy. “Headline risk” is invoked so frequently it barely requires explanation. On trading floors, there is a running joke that markets now have “a memory of about 15 minutes” — a way of describing how quickly geopolitical fear is discounted.
But beneath the humor sits a serious structural assumption: that the institutional guardrails on the American economy will hold despite Trump’s constant pressure.
Traders seem to be working on a set of assumptions that normal diplomatic relations, the Fed’s ability to respond to a crisis and the usual limits on presidential power will prevent Trump from doing anything disastrous.
That is why price swings related to the Iran war have increasingly faded. The market isn’t ignoring the risks of conflict as much as it is assuming that things will work out eventually. That distinction is critical. Investors are not assuming conflict is unlikely; they are assuming it is contained.
That assumption has become a self-fulfilling prophecy, as the stock market has repeatedly recovered from shocking Trump headlines and traders have become conditioned to expect a quick rebound.
As a result, traders are now holding on to stocks for shorter periods, keeping their own risk lighter and focusing more on flexibility. The stock market is mostly on autopilot, as automated computer programs that ignore the headlines make decisions. Professional human investors are still too nervous to get involved, and international investors from Europe and Asia are being even more careful and keeping their money on the sidelines.
If Wall Street is correct that Trump isn’t doing any long-term damage, then this pattern will be just fine. But the longer it goes on, the more risk there is that one day traders will decide that things have gone too far and the risks are too great. As history shows, that means a stock market crash that doesn’t rebound for years.
This is a preview of MS NOW’s Project 47 Newsletter. As President Trump continues implementing his ambitious agenda, get expert analysis on the administration’s latest actions and how others are pushing back sent straight to your inbox every Tuesday. Sign up now.
Lily Becker is a producer on “The Weeknight” for MS NOW.