Weekly Insights: Trump’s “Debt Reduction Campaign” Shakes the Market—When Will U.S. Stocks Bottom Out?

Performance of Global Equity Indices(in US Dollar)

Source: Bloomberg, Tiger Brokers

Key Market Themes

Trump’s “Debt Reduction Campaign” Shakes the Market—When Will U.S. Stocks Bottom Out?

• The recent sharp decline in U.S. equities has undoubtedly been the hottest topic among investors. Since mid-to-late February, the Nasdaq has plunged approximately 12% over just a dozen trading sessions. The Philadelphia Semiconductor Index has been hit even harder, dropping 16%. The once red-hot “Magnificent Seven” tech stocks have suffered severe losses—Tesla has been cut in half, NVIDIA has pulled back 30% from its peak, while Microsoft, Google, and Amazon have each seen declines of nearly 20%.

Source: Bloomberg, Tiger Brokers

• At the heart of this market turbulence is President Donald Trump. His erratic tariff policies, aggressive domestic reforms, and unconventional diplomatic maneuvers have fueled uncertainty. Amid this instability, some market participants have begun speculating about a “Trump Put”—the idea that the Trump administration might intervene to stabilize the market if the sell-off deepens. However, this theory was directly refuted by U.S. Treasury Secretary Bessent, who firmly stated, “No Trump Put.”

• Meanwhile, major U.S. investment banks have lowered their expectations for the stock market.

  · Morgan Stanley cut its U.S. economic growth forecast for the next two years.

  · Citibank downgraded U.S. equity allocation from overweight to neutral.

  · Goldman Sachs revised down its year-end target for the S&P 500 by 5%.

  Given this series of developments, it may seem like Trump is disrupting everything—but the real question remains: What is his ultimate goal?

• Trump has always viewed governing the country like running a business, a core philosophy of his leadership. Rationally speaking, he is a shrewd businessman, and as the most powerful figure in the country, he has no reason to bet against his own nation for personal gain. Therefore, we can set aside conspiracy theories for now.

  We believe that, whether through tariff policies or government audits, Trump is launching an American version of a "debt reduction campaign."

• Since the COVID-19 pandemic in 2020, the U.S. government has been on a massive borrowing spree. According to official data, from 2020 to 2024, U.S. government debt has increased by a staggering $13 trillion—more than the total increase over the previous decade.

  Currently, U.S. government debt stands at 120% of actual GDP, a historically high level. Coupled with the prolonged high-interest rate environment, the debt burden on the U.S. government has become increasingly severe.

  The Congressional Budget Office (CBO) has also issued a warning, projecting that in 2025, net interest costs will account for 3.1% of GDP—the highest level since 1940!

Source: Bloomberg, Tiger Brokers

• From this perspective, Trump's actions start to make perfect sense. Debt reduction essentially involves two approaches: increasing revenue and cutting expenses. On the revenue side, raising tariffs and selling immigration golden visas are aimed at boosting government income. On the cost-cutting side, internal audits and withdrawing from international organizations are efforts to reduce government expenditures. Ultimately, all of these measures serve one core goal: reducing the U.S. debt leverage. Recently, both Trump and Treasury Secretary Bessent have stated that the U.S. economy is entering a “detox phase”, where the government-spending-driven economic model will shift. They do not rule out the possibility of a recession as part of this transition.

•  Against this backdrop, the Federal Reserve finds itself in an awkward position. From Trump’s standpoint, the sooner the Fed cuts interest rates, the lower the government’s debt burden. This explains why Trump has repeatedly urged the Fed to lower rates as soon as possible. From the Fed’s standpoint, however, inflation remains a major concern. Last week, Fed Chair Jerome Powell made it clear in a public speech that the Fed is in no rush to cut rates until the full impact of Trump’s economic policies becomes clearer. This indicates that Powell is under significant pressure from Trump but remains hesitant to act prematurely.

• Interestingly, Chinese investors are no strangers to debt reduction policies. China launched its deleveraging campaign in 2018. The “Three Red Lines” policy was introduced in 2020 to further regulate corporate debt. Even today, China’s debt reduction efforts continue. Looking back at the performance of Hong Kong and A-shares (China’s stock markets) in recent years, they might serve as a useful reference for what’s to come in U.S. equities. Until economic conditions or Trump’s approval ratings face real threats, he is unlikely to halt his debt reduction agenda. Even if there are temporary rebounds in the stock market during this “detox phase”, the risks in U.S. equities remain far greater than the opportunities!