Opinion Leaders
In the US, the Overton window is wide open
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Clément Inbona
Fondsmanager
LFDE
Also known as the window of discourse, the Overton window refers to the range of ideas and opinion that the public in a particular society find acceptable at a given time.
It is a dynamic concept and will shift in the following specific situation: if extreme ideas are deliberately promoted, public opinion will, by comparison, be more inclined to accept those ideas that it had previously deemed unacceptable.
In the US, since taking office, Donald Trump has thrown this window wide open on societal, political and economic issues. This undoubtedly explains – at least in part – why US equities have underperformed versus the rest of the world between Trump’s inauguration on 20 January and 27 February. Over this period, the S&P 500 has lagged a global index excluding the US by 8%.
Donald Trump has plunged economic participants and financial markets into a permanent state of stupefaction with a deluge of sensational statements on trade policy, deregulation, geopolitics and the reduction in public spending under the aegis of Elon Musk. His unpredictable nature and ability to take quick and dirty decisions is starting to take a toll on consumer and corporate confidence. Furthermore, market uncertainty is palpable in the rising Fear Index, VIX. And despite sound fourth quarter 2024 results, the stock market stars of the last two years – the Magnificent Seven – have been struggling since the start of the year. As at 27 February, six of the seven are down, indeed sharply down since 1 January, whereas the S&P is more or less flat. Maybe they should be renamed the Lagnificent Seven!
In recent days on Wall Street, one of the more visible symptoms of the shift in the Overton window has been the chatter proliferating around a supposed Mar-a-Lago Accord, inspired by the Plaza Accord of 1985. Still a hypothesis currently, the purpose of such an Accord would be to weaken the dollar in order to restore US competitiveness and, most importantly, lighten the US government’s debt burden. The wildest conjectures go so far as to imagine an agreement with existing holders to exchange their US debt for bonds with a 100-year maturity and zero coupon to maturity. Such a situation would be tantamount to the dispossession of foreign investors.
To judge from his first mandate, for Trump, achieving his mantra, Make America Great Again, also implies resilient stock markets. Let’s hope that this benchmark continues to serve as a counterbalance to his excesses, otherwise the next four years may prove very long for investors exposed to US assets.
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Final version of 28 February 2025 – Clément Inbona, Fund Manager, La Financière de l’Échiquier (LFDE)
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