Trump Is remaking markets. Is ‘buy the dip’ dead?

His muscular policies, coupled with his legions of adoring supporters, are politicizing the financial markets in ways that have rarely, if ever, been experienced in modern America. The crosscurrents are making stocks and options harder to analyze and trickier to navigate.

Many conservative investors who support President Donald Trump’s MAGA agenda are calmly watching stocks tumble in response to his use of tariffs against allies and foes alike. They are more than willing to sacrifice investment gains for political victories, according to conversations with investors and advisors.

Anti-Trump investors, by contrast, are upset and selling stocks. They fear Trump is weakening the U.S. and the multinational trade and defense alliances that have stabilized international affairs since the end of World War II.

The synthesis of politics and markets at the individual investor level—rather than at the traditional macro level that some hedge funds use to guide their allocation decisions—could change the trading patterns that have long defined the stock and options markets.

Since the internet bubble burst in 2000, and especially after the 2007-09 financial crisis, many investors have developed an evangelical faith in two momentum trading strategies: Buy stocks during big declines and chase hot stocks that are trending higher.

But if many investors look at their portfolios are extensions of their political beliefs, those strategies may no longer hold sway. Market purists who believe investors make rational economic decisions will find it heretical, but some investors might endure stock declines—such as this week’s maelstrom—because they believe Trump’s policies are necessary to save America.

Pundits like to dismiss individual investors as dummies. That’s wrongheaded. Segments of the investor bloc have become incredibly savvy after weathering the major market crises of the past 25 years. They often behave like sophisticated hedge funds.

For instance, these savvy individual investors regularly buy call options—which increase in value when stock prices rise—and then, en masse, buy the associated stock. The strategy usually pushes stock prices higher to create larger trading profits. The options activity is often so pronounced that it dwarfs stock activity, while banks and hedge funds track the phenomenon as a trading opportunity they can use to profit.

One of the market’s greatest risks—and perhaps the most susceptible to Trump’s radical policies—is the evangelical faith among many individual investors and institutions that stocks always snap back after major stock declines to resume the rally.

The options market, for its part, has reacted to recent developments by inflating with a fear premium. The prices of bearish puts, which increase when stock prices decline, are now markedly higher.

The Cboe Volatility Index, or VIX, was recently around 27, up almost 60% since Trump returned to Washington. At 30, the VIX is considered to indicate a recession, which Trump recently indicated a willingness to endure if that was needed to prevail in global affairs. A recession occurs when an economy stops growing and contracts. Lower corporate earnings and stock prices typically follow.

Markets are endlessly complicated, and MAGA exacerbates those conditions. Investors must now ponder how much stock weakness is needed to create the panic conditions that are required for a meaningful rebound. Until then, this week’s unsettled conditions are best viewed with trepidation and perhaps as another expression of America’s culture wars.