BREAKING donal trump’s stock market miscalculation – News


Trump’s stock market miscalculation.
After cheering the market’s relentless rise, Trump is forced to face the reality of Monday’s
swift and historic fall. President Donald Trump is learning a basic
and painful lesson of Wall Street: Stocks also go down. A global market sell-off accelerated Monday
with the Dow Jones Industrial Average plunging nearly 1,600 points at one point in roller-coaster
afternoon trading. After a volatile session, the Dow ended down 1,175 points, or 4.6%,
at 24,346. It was the largest ever single-day point drop
for the Dow and it rattled both Wall Street and Washington, abruptly ending a remarkable
period of placid markets where it often seemed the only direction was up. A young generation
of Wall Street traders has never seen the kind of whipsaw action that seized markets
Monday. While the point drop was the largest, Monday’s
decline did not rival some of the bloodiest days in Wall Street history given how fast
the Dow has raced ahead in recent years. On Oct. 19, 1987, the notorious “Black Monday,”
the blue chip average gave up nearly 23 percent of its value. On Sept. 29, 2008, in the depths
of the financial crisis, the Dow sank nearly 7 percent. But it was still a large and shocking decline.
It arrived amid growing concern that an economy juiced by a massive corporate tax cut, and
already at full employment, could overheat and require forceful action from a new and
untested Federal Reserve chairman — installed by Trump — to cool things down. On top of concerns about rising inflation,
the tax cuts are already increasing the federal government’s need to borrow and accelerating
the date by which Congress must raise the federal debt limit. And as of Monday, there
was still no plan in Washington to raise the limit and avoid a catastrophic default. The result is that a president who tossed
aside traditional presidential caution in cheerleading the stock market now stands poised
to take the blame for any correction. “This is a risk that the president clearly
set himself up for,” said Charles Gabriel of Capital Alpha Partners, a Washington research
firm. “Until now, Trump’s had kind of a free ride in this market and taken so much
credit for it, even though so much of it was due to easy-money policies from Janet Yellen
and the Fed. Now she’s out the door and volatility is back.”
Jerome Powell, the new Fed chair installed by Trump and sworn in Monday, is not expected
to deviate sharply from Yellen’s gentle approach to raising interest rates. But he
is a lesser-known figure on Wall Street. And if the recent jump in hourly wages gets
pushed up even more by corporations handing out bonuses and pay bumps in the wake of the
tax bill, the Fed may be forced to move faster to fight inflation — offsetting the economic
benefits of the tax cuts. Interest rates are already rising as the government
discloses it will have to ramp up borrowing in 2018 to make up for revenue lost to the
tax-cut bill. Higher rates on government bonds make stocks look less appealing. They also
can make it harder for businesses and consumers to borrow and spend, possibly slowing the
economy. On top of all this, stocks blew past traditional
valuations as they raced ahead in 2017 and early 2018. A widely followed ratio designed
by economists Robert Shiller and John Campbell that compares stock prices to corporate earnings
hit 34 this year. The historic median for the ratio is 16. This could have served as a warning to Trump
not to associate himself too closely with a rally that looked tenuous to many Wall Street
analysts. Instead, Trump bragged about the gains at every opportunity on Twitter and
even in his State of the Union address. “The stock market has smashed one record
after another, gaining $8 trillion in value,” Trump said in his address to Congress.
Last week’s decline alone wiped out nearly $1 trillion in that value, according to S&P
Dow Jones Indices. Trump has regularly boasted on Twitter that
the stock market rise, which actually began in 2009 at the end of the last recession,
is the direct result of his policies on taxes and regulation. “Business is looking better than ever with
business enthusiasm at record levels. Stock Market at an all-time high. That doesn’t just
happen!” he tweeted last August. Other senior administration officials such
as Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn have also
tied the market’s gains directly to Trump policy moves. The latest declines left a White House that
has basked in the glow of the market rally scrambling to explain away the massive decline
and calm frayed investor nerves. “The President’s focus is on our long-term
economic fundamentals, which remain exceptionally strong, with strengthening U.S. economic growth,
historically low unemployment, and increasing wages for American workers,” White House Press
Secretary Sarah Huckabee Sanders said in a statement. “The President’s tax cuts and
regulatory reforms will further enhance the U.S. economy and continue to increase prosperity
for the American people.” Stocks are still far higher than they were
when Trump took office, but the return of sharp volatility — and the possibility of
further declines — has now put Trump in the uncomfortable position of being directly
associated with daily market moves. “Presidents historically haven’t commented
on the stock market anywhere near as much as President Trump has,” said Ed Yardeni,
market analyst at Yardeni Research Inc. “I think Barack Obama said something in 2009
about how he thought stock prices seemed low, and that was about it. So he obviously likes
to take credit for the positives. Now what does he say when the market suddenly goes
down?” So far, Trump has not weighed in publicly
on the market declines. A White House official sent a statement to CNBC on Monday expressing
concern over the drop. “We’re always concerned when the market loses any value, but we’re
also confident in the economy’s fundamentals,” the statement said.
Both the U.S. and global economies are in fact on stronger ground than they have been
in years, leading many Wall Street analysts to suggest that the current bout of selling
represents something of a healthy correction to stock market valuations and not the beginning
of a bear market. Unemployment in the U.S. is low, corporate
profits are strong, and growth in the first quarter is currently running as fast as 5.2
percent, according to the most recent estimate from the Atlanta Fed. Europe and Japan are
also growing, a kind of synchronized global expansion not seen in recent years. “Corrections of 5% to 15% occur on average
once a calendar year,” Jason Pride, director of investment strategy at Glenmede, wrote
in a client note Monday. “Further, history has shown the market capable of making it
through such corrections and going on to positive returns for the full year period, particularly
in cases of ongoing expansions.” The market may indeed quickly reverse course
in the coming days and go on to move higher over the course of the year, allowing to Trump
to start bragging again and possibly aiding Republicans in their efforts to tout the tax-cut
bill and limit potential losses in the midterm elections. But significant risks lie ahead in Washington.
The biggest is whether Powell and the Fed can navigate a difficult path between allowing
the economy to thrive and wages to rise without letting potentially crushing inflation take
hold. And if Powell and his colleagues decide they need to pump the brakes hard, that could
leave them in direct conflict with a president not shy about criticizing people he himself
put into office. And it could leave Trump with regret about
jettisoning a Fed chair whom Wall Street came to love. “For the past four years, Yellen
was the fairy godmother of the bull market,” said Yardeni. “And now that she’s gone,
maybe we don’t get the fairy dust anymore.”

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