President Trump didn’t just take credit for the booming stock market. He outright cheered it to go “up, up, and up.”
But all of a sudden, the stock market that Trump attached himself to is in turmoil, putting the White House in a difficult spot. The Dow has plunged more than 1,500 points, or 5.6%, in just six trading days as investors fret over cracks emerging in the bond market.
“We’re always concerned when the market loses any value,” a White House official said in a statement on Monday morning. “But we’re also confident in the economy’s fundamentals.”
That the administration felt the need to weigh in underlines the risk Trump took in becoming the cheerleader-in-chief.
Presidents don’t typically comment on the Dow’s day-to-day moves, in part because the market is notoriously fickle. Wall Street is always one mood swing away from turning a rally into a plunge. And taking so much credit for the good days makes it hard to distance yourself from the bad ones.
“It’s a risky game to talk about the markets. But it seems like Trump is going to live or die by the stock market,” said Greg Valliere, chief global strategist at Horizon Investments.
Trump has tweeted about the stock market dozens of times since his election, frequently bragging about the latest all-time highs on Wall Street.
“Dow, S&P 500 and Nasdaq all finished the day at new RECORD HIGHS!” Trump said on Twitter on November 28.
Trump hasn’t just claimed that stocks are up because of him, he has argued without offering proof that they would have crashed if Hillary Clinton were president.
“If the Dems (Crooked Hillary) got elected,” Trump tweeted in late December, “your stocks would be down 50% from values on Election Day.”
Trump is not the first president to talk about the market, but his predecessors did so infrequently and spoke in broader terms.
In some ways, Trump’s obsession with the market is surprising because he paints himself as a populist and the market tends to benefit rich people more than poor. Barely one-third of families in the bottom 50% of earners own stocks, either directly or indirectly through 401(k) plans, according to the Federal Reserve.
“It’s risky because many people in his base don’t like the market. They hate Wall Street,” Valliere said.
Of course, the recent losses on Wall Street have put just a dent in the overall gains of the Trump era. The Dow and Nasdaq remain up nearly 40% since Trump’s election. And even after the big drops on Friday and Monday, stocks aren’t far off their all-time highs.
And the White House is correct: The economic fundamentals are strong. The unemployment rate is at a 17-year low, and global growth is accelerating.
That means this market rough patch could quickly fade, allowing Trump to once again tout record highs on Wall Street.
Ironically, Trump’s signature legislative accomplishment — massive tax cuts for businesses — may be playing a role in the recent market trouble.
The tax cuts prescribed expensive medicine to a healthy economy. Stimulating a strong economy could be too much of a good thing. Morgan Stanley warned in the fall that “overheating” the economy may backfire by causing stocks to “boom then bust.”
There are early signs that just that scenario is playing out. The stock market soared as Congress moved toward enacting tax cuts that would be paid for by adding to the deficit.
But now trouble in the bond market is unnerving stock investors. Heavy selling has lifted the 10-year Treasury yield from about 2.4% at the beginning of 2018 to 2.85% today. Higher bond yields make stocks look less attractive and raise borrowing costs for businesses, consumers and of course the federal government.
The bond market stress reflects the reality that the U.S. Treasury needs to take on more debt to pay for Trump’s tax cuts.
“The new tax bill and administration deficit policy mean accelerating federal borrowing,” David Kotok, co-founder of Cumberland Advisors, wrote in a report on Monday.
The healthy jobs market is also driving up Treasury yields. The 10-year Treasury rate hit a four-year high on Friday after the Labor Department reported the strongest wage growth since 2009.
Investors worry that the Fed could grow concerned about inflation caused by strong wage growth. The Fed may have to remove the easy-money punch bowl that has been lifting stock prices. Big pay raises could also eat into record-high corporate profits.
“Trump failed to appreciate the impact of all the stimulus on the bond market,” Valliere said. “I think the bond market is going to be an irritant for this White House for the foreseeable future.”
–CNN’s Jeremy Diamond contributed to this report.
