After a period of skepticism, many investors appear to be regaining confidence in the so-called “Trump put”—the idea that President Trump would avoid policies that severely damage the stock market. This renewed optimism is reflected in the recent rebound of the S&P 500, which has climbed over 6% in the past week and is trading at elevated forward price-to-earnings multiples.

The market's recovery coincides with hopes that the administration will ease trade tensions and a sense that President Trump is no longer impervious to market turbulence, implying that stock market reactions can influence policy decisions. This shift is evident in options trading, where the convexity premium—a measure of how much investors pay to insure against big market drops—has decreased after a sharp spike earlier this month. Though still higher than earlier in 2023 and early 2024, this decline suggests growing complacency among equity investors.

However, the cautionary lesson from recent history is that it was pressure from the Treasury market, not the stock market, that ultimately constrained policy actions. Investors should remain vigilant, as reliance on the “Trump put” could overlook underlying risks.