A couple of days ago, the Wall Street Journal ran a story that described just how obsessed Donald Trump is with the stock market these days.
That, in an of itself, isn’t really “news”. After all, Trump has been obsessed with the stock market since taking office, and he’s tweet-bragged about the Dow more times than anyone can count.
Just to reiterate the obvious, it’s never a great idea to take credit for the stock market if you’re the president. That’s tempting fate, and it sets the stage for a scenario where, if the market falls, you either have to own the selloff just like you owned the rally, or else find a scapegoat.
For Trump, that scapegoat is Jerome Powell, an exceptionally ironic development for multiple reasons, not the least of which are:
- Trump repeatedly cited Janet Yellen’s policies as the proximate cause of the buoyant stock market while on the campaign trail, proving beyond a shadow of a doubt that he had some conception of how monetary policy feeds through to equity prices and yet, his pride got in the way of reappointing Yellen which means he has nobody to blame but himself for Powell’s “poor” performance as guardian of the Dow
- Trump’s own foray into late-cycle fiscal stimulus forced Jerome Powell to lean more hawkish than he otherwise might this year which means, again, that when it comes to the Fed going “loco”, the President can at least partially blame the man in the mirror
Thanks to the Fed’s recent dovish turn and Powell’s reasonably explicit efforts to walk back his “long way from neutral” comments from October, it’s harder for Trump to blame the Fed for market volatility. Last week was a case in point. It is clear that the market is worried about the durability of the tenuous trade truce struck in Argentina and the Huawei situation has exacerbated those worries materially.
Stocks posted their best week since 2011 thanks to Powell last week and had their worst week since March this week thanks in no small part to the Huawei drama.
In short: Trump is running out of excuses when it comes to finding ways to deflect blame from the trade war in the course of explaining away market volatility.
And indeed, it’s not even clear that one came entirely blame Powell’s “long way from neutral” misstep for the October rout. Have a look at the following chart (which also shows the evolution of Wall Street’s year-end S&P target) and tell me what “caused” the swoon, Jerome Powell or the imposition of tariffs on $200 billion in Chinese goods from September 24:
Clearly, both played a role and there’s a good argument to be made that Powell was the controlling factor, but that doesn’t change the fact that on September 24, everyone suddenly realized Trump was serious about the trade war. Until then, the actual amount of Chinese goods subject to tariffs was small in the grand scheme of things.
Getting back to the Wall Street Journal article mentioned here at the outset, here are two excerpts:
Mr. Trump has often dismissed market fluctuations as part of a natural correction, but several people close to the president say he places as much importance on the health of the Dow Jones Industrial Average for validation of his job performance as he does with his polling numbers.
While at the White House, he will often keep the TV tuned to business channels and watch the Dow’s minute-to-minute movements, people close to the White House said. He would get excited about triple-digit gains in a single day and question aides about how certain actions might influence the market, people familiar with the matter said. Asked about Mr. Trump’s attention to the stock market, one person close to the White House said: “He’s glued to it.”
Yes, Trump is “glued to it”, and unless you believe that he believes that the American public is going to take seriously the notion that the proximate cause of the market’s readily apparent consternation is “presidential interference” (a term Trump made up last month to explain equity volatility), you’d be inclined to think that before long, he will relent. Because if he doesn’t, he’ll have to explain why this gap keeps getting wider:
(Bloomberg, w/ annotations)
And before anyone says anything, “yes”, it would probably be more accurate to measure that from the election rather than the inauguration, but here’s the thing: That’s not as much fun! 🖕
Now please, Don Jr., tell us again how “it’s amazing what happens when a businessman is allowed to run the economy.”