President Trump may have been unaware of this, but there’s a reason that smart presidents steer clear of boasting about stock market returns during their tenures: It’s because the stock market has a way of biting braggarts in their most tender spots.
For Trump, that spot is his amour-propre. On Wednesday, the stock market took dead aim on that spot and took out a healthy chunk. The Dow Jones Industrial Average gave up 831.83 points, or 3.15%, for its worst day since Feb. 8. The other two major indexes were right down there with it: The S&P 500 index fell 3.29% and the Nasdaq fell 4.08%.
Normally, few people would attribute this sort of record to the actions of a U.S. President, since the stock market’s ups and down are governed by myriad factors, of which Presidential policy is among the most insignificant.
But Trump has made the stock market’s gains since his inauguration part of his success narrative. Last October, for instance, he groused by tweet that the “fake news” wasn’t reporting “the virtually unprecedented Stock Market growth since the election.”
In November, he claimed that "the reason our stock market is so successful is because of me.” Etc., etc.
As we write, Trump hasn’t tweeted to affiliate himself with Wednesday’s rout. He certainly hasn’t taken blame for it, which would only be fair, seeing as he took credit for its rise. Instead, on Air Force One Wednesday, he blamed the Federal Reserve for raising interest rates. "The Fed has gone crazy," he said.
But it’s proper to note that the stock market’s performance during the first part of his tenure was nothing like unprecedented. The period from Barack Obama’s 2009 inauguration to October 8, 2010 — roughly equivalent to Trump’s tenure in office thus far, the Dow rose 38.46%. Since Trump’s inauguration, it’s risen 29% (including Wednesday’s fall).
This year, thus far, doesn’t look like it’s going to be a barn-burner. Year-to-date, the dow is up a meager 3.55%, the S&P 500 is up 4.19%, and the Nasdaq up 7.5%. October tends to be the stock market’s cruelest month, so there’s no telling how the market will perform for the rest of the year, or even the rest of the week. It’s every bit as plausible that the market will finish the year up a double-digit percentage as that it will end in the red. As J.P. Morgan was said to have told a passerby importuning him for stock market prognostication, “The market is going to fluctuate.”
It is possible, still, to make some guesses about the reason for Wednesday’s rout. One is that routs happen, especially when the market has been on an unbroken tear. That seemed to be the case this week; from time to time, stock markets let off steam, and often it isn’t pretty.
Another reason is that interest rates have been rising, and that always produces headwinds for stocks. That’s because higher interest rates can be a drag on corporate performance, the underpinning of functioning stock markets, and also because higher interest rates result in lower bond prices, which makes bond investments more competitive with stocks.
A third, more disquieting reason is that the stock market is telegraphing a slowdown in the overall economy. That wouldn’t be good for investors or Americans in general. It would be a distinct blow to Trump, who also has hitched his success parade to the strong growth in the U.S. economy. The Federal Reserve has been trying to turn down the spigot of economic growth out of concern that the economy will overheat, bringing about an even sharper downturn. Its instrument of choice is a hike in interest rates, and it’s been playing that instrument all year, with more choruses to come.