Wall Street Learns to Love Energy Abundance
It took Wall Street a while to come around, but the stock market has finally embraced the president’s worldview.
Not in every respect, to be sure. The market still has its little attacks of nerves over tariffs, and corporate America still discusses trade barriers in tones usually reserved for pestilence, locusts, or the arrival of a tax auditor. But when it comes to the proposition at the heart of President Trump’s economic instinct—that prosperity rests on abundant, affordable energy—the market has become unmistakably Trumpian.
Watch the tape these days, and the thing is almost embarrassingly plain. Oil up, stocks down. Oil down, stocks up. The relationship has lately become as reliable as a Swiss watch and about as complicated as a see-saw. For all its advertised sophistication, the market appears to have concluded that cheap energy is good for growth, expensive energy is bad for growth, and that an economy still rests, in the final analysis, on the cost of making, moving, cooling, heating, building, and consuming actual things.
That, of course, is a distinctly Trumpian way of looking at the world, and a distinctly unfashionable one.
The modern financial sensibility was shaped by decades of asset inflation, central-bank divination, and the conceit that advanced economies have somehow floated free of material constraints. Wall Street for many years was obsessed with the fantasy that we could run trade deficits forever and that a transition away from fossil fuels was inevitable. President Trump, whatever else one says about him, has always thought of the economy as something more concrete and old-fashioned: factories, freight, construction sites, pipelines, power plants, and the fuel that keeps the whole enterprise from grinding to a halt.
Cheap, reliable energy lowers the cost of doing almost everything. Factories run more cheaply, and freight moves more cheaply. Consumers have more room in the household budget. Domestic production becomes more competitive.
That, just now, has been the whole story of the markets in recent weeks.
Reviving the Fossil Fuel Economy
As the conflict around Iran threatens oil flows and raises the possibility of a broader energy shock, investors have responded in the old-fashioned way: by marking down growth when the cost of energy threatens to rise. They may dress the thing up in the language of geopolitics, safe-haven flows, and risk sentiment, as financiers are professionally obliged to do, but the market’s message is admirably direct. What imperils prosperity is not war in the abstract. It is the prospect that energy becomes durably more expensive.
Durably being the operative word. Jim Bianco of Bianco Research points out that the crude oil futures curve is trading in “extreme backwardation.“ That’s Wall Street speak for the fact that futures prices indicate that today’s increase will not last. The market is not pricing a sustained energy shock. It is pricing a sharp disruption of a few months’ duration, on the theory that no serious infrastructure damage has occurred, that storage in the Middle East is filling as tankers wait out the Strait of Hormuz closure, and that when transit resumes the system will flush and prices will fall. IMF Managing Director Kristalina Georgieva has warned that a 10 percent energy price increase persisting for a year would push global inflation up 40 basis points and trim growth by 0.1 to 0.2 percent. The futures curve is, among other things, a wager that her threshold will not be breached.
The market is further reassured by the happy absence of ambiguity in the administration’s instincts. Whatever may be unfolding on a given day in Iran, investors know this White House will aim to push energy prices lower, not accommodate them at elevated levels with the usual sermonizing about transition and sacrifice. A geopolitical risk premium may not vanish on command, but it is no small thing for markets to know that Washington is, at minimum, philosophically on the side of cheaper oil.
Strip away the headlines and the pieties, and the judgment is as old-fashioned as it is obvious: expensive energy is a tax on growth.
This is where Wall Street has become unmistakably Trumpian. Not that the titans of finance would admit it, of course. You could spray a firehose across the dining room of Coco’s at Colette, the members-only restaurant perched on the 37th floor of the General Motors building on Fifth Avenue that has become the favored power lunch spot for financiers, without soaking anyone who would admit to having a MAGA hat in his closet. But the ups and downs of the market, which is often more candid than the public pronouncements of the analysts, make it clear. The Street may continue to talk as though prosperity is made of software, sentiment, and Federal Reserve adjectives. Yet every time crude jumps and stocks sink, it confesses that the physical economy still matters more than the fashionable one likes to admit.
Even on tariffs, the market is no longer behaving as though the republic is coming apart at the seams. After Liberation Day last year, stocks had their brief fit of alarm. But by year’s end, the S&P 500, Nasdaq, and Dow were all sharply higher, suggesting investors had concluded that higher tariffs had not, in fact, rendered American growth impossible. Oil moves markets in a way tariffs no longer do. Energy prices, not trade-policy lectures, are telling investors what to fear.
And that brings us back to Trump. The president’s underlying instinct has always been that prosperity begins with abundance, especially energy abundance. America first means energy first. Then output, transport, affordability, competitiveness, and everything that follows.
