The Overton window and the US
6 MAR, 2025
Author: Clément Inbona, Portfolio Manager at La Financière de l'Echiquier
Also known as the discourse window, the Overton window designates the set of ideas and opinions considered more or less acceptable by public opinion in a society at a given time. This dynamic concept evolves especially in the following case: through the deliberate promotion of extreme ideas public opinion will be more willing, through a comparison effect, to accept postulates that were hitherto considered intolerable.
In the US, Donald Trump has widened this window enormously since he took office, not only socially and politically, but also economically. No doubt this explains, at least in part, the relative underperformance of US equities against the rest of the world between the inauguration on 20 January and 27 February. Over this period, the S&P 500 is down 8% against a world index that excludes the US.
By multiplying his bombastic declarations on trade policy, deregulation, geopolitics or the reduction of public spending under the supreme authority of Elon Musk, Donald Trump has plunged economic actors and financial markets into a state of permanent astonishment. His unpredictability and his ability to make quick and dirty decisions are beginning to be substantiated by a decline in consumer and business confidence. Moreover, the uncertainty in the markets is palpable in the rise of the VIX, the fear index. Despite good results in the fourth quarter of 2024, the star stocks of the last two years, the Magnificent Seven, have been suffering since the beginning of the year. Between January 1st and February 27th, six of the seven have declined, even significantly, while the S&P is close to balance. Should we rename them the Seven Laggards?
In recent days on Wall Street, one of the most visible symptoms of the widening of this famous window is the multiplication of reports of a possible Mar-a-Lago Agreement, inspired by the 1985 Plaza Accord. This agreement, hypothetical for the moment, would be aimed at weakening the dollar in order to restore US competitiveness, but above all to lighten the US public debt. The wildest hypotheses even imagine an agreement with creditors to swap the current debt for 100-year bonds with no coupon until maturity. This scenario would not be far from a form of spoliation of foreign investors.
In light of his first term in office, it seems that, for Trump, the achievement of his Make America Great Again mantra also depends on resilient stock markets. Let us hope that this thermometer remains a brake on some of his excesses, for without it, the next four years threaten to be a long one for investors exposed to US assets.
