The drumbeat over the course of 2017 was consistent. The stock market was doing great, which was a function of the strength of the economy, which itself, the White House argued both implicitly and explicitly, was a function of the stewardship of President Trump.
The promise was that this good news would keep rolling in. As the Republican tax-reform bill made its way to Trump’s desk, his chief economic adviser Gary Cohn suggested that “tax cuts are not priced in” to the market — meaning that once markets took into account the reforms to tax policy that soon after were signed into law, the markets would surge even higher.
During his State of the Union address last week, Trump pointedly mentioned the upward trend of the markets as evidence of how he was “building a safe, strong, and proud America.”
“The stock market has smashed one record after another,” he said, “gaining $8 trillion in value. That is great news for Americans’ 401(k), retirement, pension, and college savings accounts.”
Less than a week later, the market set a couple of more records: the biggest single-day and two-day declines in the history of the Dow Jones industrial average. In contrast to that $8 trillion Trump touted, the S&P 500 shed $1.6 trillion. The week has recovered somewhat, but the quick drops on Friday and Monday sent a shiver down the spine of those Americans with money in the market (a bit less than half the country).
There was an immediate question that came to mind. How would Trump, who’d so often touted market growth as an indicator of his success, respond to the markets shedding a huge amount of value? On Wednesday morning, we got our answer.
By touting the plunge as an indicator of his success.
According to Trump’s tweet, the rules of the markets are now flipped. Now good economic news leads to the markets plunging. (Apparently this rule only took effect after his speech last week.)
There’s an argument that can be made to Trump’s point. Part of the drop on Friday was attributed to a Bureau of Labor Statistics report that wages had increased 2.6 percent year-over-year. This was good news for employees, certainly. For employers and economists, though, it wasn’t necessarily that great, prompting concerns about a spike in inflation. That drove part of the sell-off.
The thing about the markets is that one person’s good news is another person’s bad news. There’s a way to make money when the markets are going up (buy low, sell high) and to make money when they’re going down (shorting stock). It’s complicated, and whether a shift in stock prices up or down is good news depends on the position you hold.
This isn’t how it works politically, though. It’s very Trump for the president to insist that a thing happening shows how well his economy is faring — and that the opposite of that thing happening also shows the same thing. In investment, buying stock is the opposite of shorting that stock, and if you’re doing both on the same stock it’s probably going to end up as a wash. In politics, holding contradictory positions could actually pay out, if you can convince people they aren’t contradictory positions. Or if people are so invested in you that they don’t really care.
Ultimately, the weird thing here isn’t that there was a sharp drop in the market even as the economy still seems to be humming along. The weird thing is that Trump doesn’t seem to have learned the lesson that constantly trying to spin a historically volatile economic measure as an unalloyed good thing can carry a risk.
As of writing, for example, the Dow is up more than 200 points. Does this mean that the news about the economy is bad?
Obviously not. What happened, see, is that the fundamental rules underlying the economy changed after Trump tied his work to the markets’ surge on Tuesday of last week. By Friday, when the Dow and S&P began to plunge, we lived in a new economic world where good news drove the markets downward. Right after Trump tweeted, though, those laws reverted. It’s a tumultuous time.
We need a volatility index on Trump’s economic rhetoric. Take a long position on it.