- President Donald Trump has consistently pointed to the stock market as an example of economic success through his first year in office.
- US stocks have had a historically bad stretch over the past few days, for reasons that have little to do with Trump.
- It shows why Trump tying his success to the market is a bad idea: he has little control over it.
President Donald Trump really likes to tie his success to the stock market. The past three trading days showed why it could come back to bite him.
The president has touted the market’s rise consistently since his election and throughout the first year of his presidency – in speeches, tweets, official statements, press conferences, and pretty much everywhere else. Both Trump and Treasury Secretary Steven Mnuchin have even said the stock market was a fair report card for the administration.
Monday’s monumental drop in the major US stock indexes show why that can be not such a great idea.
The Dow Jones industrial average dropped 665.75 points on Friday, its sixth-largest single-day decline ever. It followed that up with a 1,170.46 drop on Monday, the largest point decline ever. (The declines were less dramatic, comparatively, on a percentage-point basis.)
The decrease can be explained by a variety of factors – improving wage growth leading to increased fears of Federal Reserve interest rate tightening, bond yields surging, a weakening dollar, animal spirits, the need for a “healthy correction” – and these reasons have little to do with Trump.
That’s because the stock market is in its essence a reflection of the expectation of profit growth at individual companies and macroeconomic conditions more broadly. And the president’s economic policy is only one part of a complicated calculus that factors into investors’ actions.
Trump can influence both the macroeconomic situation – and even the bottom lines of corporations (see: tax cuts) – for good or bad, but the president only wields so much power.
International factors, commodity prices, central bank moves, and a plethora of other moving pieces can bring down the major indexes, none of which Trump could do a thing about.
For instance, Monday’s monumental drop was exacerbated by technical selling from algorithmic trading programs and the collapse of a popular bet against market volatility. Trump has no control over those elements of the market.
The administration is doing their best to reiterate this argument, consistently pointing to the strong “fundamentals of the economy” during the meltdown. But backtracking on the stock market is hard to do given the deluge of reminders about the surge in stock prices to which Trump previously pointed.
Using the example of an economic report card, Trump is accepting the performance of the entire class as his personal grade. So even if he passes every test, mistakes from others could cause him to fail.
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