Don’t Count on Donald Trump’s Wall Street Love Affair to Last

The experts got it all wrong. Not only did Donald Trump win the election, but the stock market rose sharply, as a result, too. Even more, consumer confidence, which many experts had forecast to collapse, has risen significantly. According to Gallup, confidence in the economy is now at a post-banking crisis high. The last time consumers felt this good about the economy was in January 2015, when gasoline prices were collapsing.

Unlike early 2015, though, this latest boost to consumer confidence hasn’t come from the economy, but from politics. Today, where you stand in terms of confidence depends heavily on where you sit politically. Per Gallup, just prior to the election, only 14% of Republicans perceived the economy to be getting better. A week after the election, that figure had soared to almost 50% — the highest level reported by Republicans in more than a decade. For Democrats, the election outcome has had an opposite effect: where more than 60% saw the economy getting better before the election, only 46% felt that way after.

While changes in political party leadership have impacted consumers’ perceptions of the economy in the past, this year’s post-election sentiment reversal is extreme. Republican’s, whose outlook on the economy had been deeply negative throughout the Obama presidency, didn’t wait until Inauguration Day to feel better. Their mood changed impulsively overnight, as if to say “At last!”

For the incoming Trump administration, the sharp rise in Republican voter’s outlook is likely to be both a curse and a blessing. In contrast to how they felt before the election, Main Street Republicans’ expectations are now extremely high. Trump must quickly convert their sudden mood boost into a solid foundation if the economy is to grow meaningfully over the next four years. To sustain consumer confidence, Trump must deliver not only a bold fiscal plan, but a fast-acting one, too. With Wall Street soaring — and investors already handsomely rewarded by the prospect of a Trump presidency — consumers are now looking for real proof that the new administration will reflect their interests, too. If Trump disappoints, the sense of betrayal will be intense.

Over the coming weeks, members of the House and Senate should expect intense pressure from the incoming administration to approve legislation aimed at not just sustaining, but further boosting Main Street’s reinvigorated mood. From tax cuts to higher wages and benefits to large infrastructure programs, Trump is likely to put on the table a budget unrecognizable to Republicans of the past. With his voters’ hopes now high, he needs to deliver whatever it takes.

It would not be at all surprising to see the Trump administration aim at least one sharp elbow at Wall Street and the financial elite during the transition process, too. Not only is Main Street watching Trump closely, but as Trump demonstrated throughout his campaign, he is watching Main Street’s mood intensely, too. If his supporters’ mood starts to lag, what has been a stock market honeymoon could come to an abrupt end as Trump prioritizes the needs of voters over the interests of investors and the financial elite.

But there are other important facets to the sudden change in Republican sentiment that extend beyond the economy and the financial markets. Since the election, the number of hate crimes has increased sharply — aimed at minorities, immigrants, Muslims and other groups targeted by Trump. Sadly, for some, the sudden surge in confidence is now translating into acts of revenge. One of the unfortunate consequences of chronic underconfidence is that when it ends, some will use that moment to settle the score. As mood for many Republicans has been low for decades, and many now see Trump as a savior, some sense an urgency to act out.

How the Trump administration reacts to these violent events will be important, particularly as the societal norms signaled by the incoming administration will have a long-lasting impact. Trump must walk a fine line between fostering confidence and emboldening his followers.

The impact of the rapidly changing tide in consumer confidence, though, won’t be limited to just Trump and Republicans. Already, we have seen the consequence of falling Democratic voter confidence foster spontaneous, peaceful protests. Should Democrats’ moods fall further, those protests will become angrier; and we will see the same divisiveness and and extremism seen recently within the Republican Party. As mood falls, rising self-interest challenges the cohesiveness of even the strongest organizations. Throughout the 2016 campaign, one could watch as falling confidence split support between Hillary Clinton and Bernie Sanders. If Democrats’ confidence remains low, it would not be at all surprising to see even greater divisions form. Based on what I see, a young, leftward leaning, heretofore unknown leader could easily emerge as the new hope of the party — an anti-Hillary Clinton Democrat, as it were. While Elizabeth Warren is receiving all the media attention now, if mood stays low, the spotlight will almost certainly move on to a true outsider. For the Democratic Party, the outcome of the 2020 election will rest squarely on the party’s ability to pull together young voters in opposition to the Trump presidency. While admittedly very early, I expect anti-Wall Street/anti-capitalism sentiment to play a major part, particularly given Trump’s business pedigree.

While economists will likely look at the post-election surge in confidence as a reason to expect strong holiday sales, I wouldn’t count on that. Rather than reflecting the improving financial condition of American consumer, the latest Gallup figures are expressing a return of hopefulness to Republican voters, offset by a mild decline in optimism among Democrats — a change in the political tide. Nothing has changed in the wallets and pocketbooks of voters.

For Trump, he must now translate the tent revival resurgence in confidence among Republicans into higher confidence for all Americans. As rising confidence is the critical input to economic growth, financial prosperity and social cohesion, what happens to Americans’ mood over the next several months will drive the trajectory of the next four years. While many Americans feel better today than they did last week, many, many more need to feel good.

Peter Atwater is the president of Financial Insyghts, a research and consulting firm focused on the role of confidence in economic, financial and political decision making. In the spring of 2017, he will be an adjunct professor in economics at the College of William and Mary.