Plunging more than 653 points today to 21,792 at midday, the Dow Jones Industrials average is only 2,000 points shy of the day when President Donald Trump took office Jan. 20, 2017. Less than two years after Trump’s inauguration, the Dow soared to a record high 26.657 Sept. 20, with the S&P 500 hitting 2,930, now at 2,351 or a 20% decline, marking a bear market. Dropping 140 points today to 6,193, the tech-rich Nasdaq Composite is also in bear territory, well off its record high Sept. 29 of 8,109, also approaching bear territory. Trump now blames Fed Chairman Jerome Powell for hiking rates four times since taking over from former Fed Chairwoman Janet Yellen Feb. 5, 2018. When Powell hiked rates again Dec. 19, markets went into a nosedive, recognizing more Fed tightening ahead. Trump knows that Wall Street has given up 75% of its gains under his presidency.
Pointing fingers at the Fed doesn’t give the big picture, where the economy’s slowing worldwide, with the U.S. following suit in 2019. Selling off equities gives Wall Street the opportunity to discount share prices, making them more attractive to the nation’s biggest funds. Trump’s right the Fed hasn’t helped things continuing to hike the Federal Funds Rate but there’s little the Fed can do to stave off recession other than reduce the Federal Funds Rate. Getting in last week’s rate hike to 2.50%, Powell gives the Fed a little more breathing room, if he has to switch gears in 2019 with quantitative easing or reducing rates. Whether admitted to or not, Trump’s caught between a rock-and-a-hard-place 10 years into a bull market, where the economy and Wall Street start to deteriorate. Wall Street has reacted to the global slowdown, potentially spreading to the United States in 2019.
When Trump and the GOP passed tax reform Nov. 2, 2017 they hoped it would provide more fiscal stimulus to the economy. With the jobs report strong over the last year, the GOP Tax bill led to the lowest unemployment since 1969 at 3.7% percent. Yet the unemployment rate doesn’t tell the real story of where the economy’s heading in 2019. Wall Street’s sell off, literally giving back 75% of gains during Trump presidency, could continue, especially with the government shutdown over a dispute between Democrats and Republicans on Trump’s border wall. With Trump’s trade war continuing with China and the global slowdown looming, short sellers on Wall Street change the put-to-call-ratio has exploded, leaving sellers outnumbering buyers two-to one. When sellers seize the market, major stock indexes go into freefall, taking down all major stock averages, lowering share prices.
Pointing fingers at Powell is convenient for Trump, whose entire message revolves around a strong economy. Any chink in Trump’s economic armor creates real political problems for him in the future. If the economy continues to tank into 2019, it’s going to harm Trump’s re-election bid in 2020. Showing signs of economic slowing recently the 10-years Treasury bond dropped to 2.76% or only 10 basis points from the two-year Treasury bond at 2.67%, flattening the yield curve. Flattening or inverted yield curves typically forecast economic slowdowns or recessions, something Wall Street’s dealing with now. Raising the Federal Funds rate contributes to the flattened yield curve by driving up short-term rates, while long-term rates continue to drop. As the Fed continues to monitor the economy, it’s conceivable that Powell’s Open Market Committee will shift gears on interest rates.
Treasury Secretary Steve Mnuchin rattled markets today making positive comments about liquidity in the banking system. Back in 2008, banks started running short on cash, causing the Great Recession when ordinarily solvent banks ran out of cash. Mnuchin’s comments spooked markets, accelerating selling on Christmas Eve, dropping the Dow 653 points to 21,972, only 2,000 points above when Trump took office Jan. 20, 2017. Wall Street needs some good news to reverse the current selling trend, especially on the China trade war front. Even Trump settling his differences on the border wall with Democrats and reopening the federal government would have a positive effect Wall Street. With the economy still fragile from the 2008 Great Recession, it doesn’t take much for Wall Street to go from bull or bear, requiring Trump to be careful managing important trade relationships.
To turn Wall Street around from its current nosedive, Trump needs to make progress with Democrats re-opening the government and finishing his trade war with China. Fed Chairman Powell is just one part of why Wall Street has morphed from bull to bear, realizing that the economy needs TLC from Trump and the Fed. Today’s anti-Trump media doesn’t help things reporting that Trump’s considering firing Fed Chairman Powell. That’s the same press that routinely accuses Trump of trying to fire Special Counsel Robert Mueller. All hands are required on deck to help stop Wall Street’s current slide. If Trump, Powel, Mnuchin and the media start to get on the same page, it won’t take much for Wall Street to start buying stocks again. Goldman Sachs senior strategist Abbey Joseph Cohen said markets were getting close to rebounding again, a positive sign for Wall Street.
