NEW YORK — The stock market has a new cheerleader in chief.
President Donald Trump has latched onto gains on Wall Street, where the Dow Jones Industrial Average broke 22,000 for the first time Wednesday, as a key accomplishment of his tenure while railing against others for his struggles on health care, Russia and more. The president has tweeted about the stock market at least 10 times in the past month. “Highest Stock Market EVER,” he proclaimed on Monday.
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American presidents traditionally avoid weighing in on the daily gyrations on Wall Street for a simple reason: Stocks also go down.
Now that Trump has eagerly claimed credit for instilling investor confidence and driving share prices to fresh highs, he stands to take the blame if markets hit a rough patch and decline. With fights looming over raising the debt limit and funding the government — and with tax reform far from a certainty — Wall Street analysts caution a significant pullback is possible that could leave Trump badly exposed. One widely followed measure of stock market valuation, by economist Robert Shiller, puts the S&P 500 more than 40 percent above its historical relationship to corporate earnings.
“Presidents typically don’t brag about the stock market much,” said Austan Goolsbee, who served as top economic adviser to President Barack Obama, who generally avoided market commentary even though the Dow rose about 140 percent during his tenure. “That’s because it doesn’t make sense to take credit for something that goes up if you don’t want to be blamed when it goes down.”
“Plus, presidents normally care more about ordinary folks as a measure of the economy than about how the Wall Street investors are doing,” Goolsbee said.
Trump’s recent stock market exhortations are also a sharp reversal from his views during the 2016 campaign, when he repeatedly dismissed the increase in stock prices as phony. “It’s all a big bubble,” he said on Fox News almost exactly a year ago. He predicted the bubble would burst if the Federal Reserve started raising interest rates, which it is now doing. “If rates go up, you’re going to see something that’s not pretty,” he said.
Republican communications professionals are watching Trump’s repeated invocation of the stock market with concern, both because cheerleading stock prices does not exactly fit with his populist message and out of fear of a correction on Wall Street.
“This was something that always aggravated me when I worked in Hill leadership,” said Kevin Madden, Mitt Romney’s chief spokesman during the 2012 campaign and now a partner at Hamilton Place Strategies. “Other offices would try to get ahead of an expected Dow milestone by putting out a joint statement taking credit for it. But I never met a market analyst or economist who thought that was a good idea.”
“The better, long-term communications strategy should focus on the big picture and how a policy agenda will boost the fundamentals driving the economy that truly matter to people,” Madden said.
How much credit Trump actually deserves for the new records on Wall Street also remains an open question. Stocks surged after the election on hopes that Trump would deliver strongly pro-business policies, including reduced regulations and corporate tax cuts.
But the pace of the gains moderated as the administration got dragged into controversy after controversy, faced staffing troubles and suffered the collapse of its Obamacare repeal efforts.
The Trump effect can still be seen — especially in the soaring shares of big banks anticipating softer regulations — but analysts now say most of the increases are based on fundamentals like strong corporate earnings and continued modest economic and job growth that are in line with the trend under Obama. The Fed’s slow and methodical approach to raising interest rates is also helping boost stocks to new highs.
“I think most of it has been fundamentals right from the get-go,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “A lot of the market movement started the summer prior to the election when you had the global manufacturing recession ending and the two-year pause in the earnings cycle ending. There were a lot of fundamentally good things happening that were largely the reason for this rally.”
Paulsen and other analysts, however, do credit Trump for changing investor attitudes about the regulatory climate for banks, drug companies, the energy sector and other industries. “The lasting impact of Trump, to me, is that he stopped and maybe even rolled back the Obama regulatory trade,” Paulsen said.
Even with the new record on the Dow, Trump actually trails many recent presidents in stock market performance over the first six months of an administration. The Dow rose about 11 percent during Obama’s first six months, compared with 9 percent for Trump, about the same increase as under President Bill Clinton in 1992. The recent record belongs to President George H.W. Bush, with a 15 percent increase in 1988, according to data compiled by the Bespoke Investment Group.
There is something of a silver lining in stock prices now for Trump. Because Wall Street is no longer counting on massive tax cuts or a full rewrite of financial regulations, there could be less of a risk of collapse if Trump’s agenda stalls.
“The Trump trade is pretty much gone from the market right now,” said Jack Ablin, chief investment officer at BMO Wealth Management. “That’s a far cry from where we were in December, when investors assumed everything Trump promised would be signed into law.”