Why is the Treasury Secretary asking banks if they have enough cash? What’s wrong with the Federal Reserve chairman? And how’s the trade war going, anyway?
These are questions investors shouldn’t be asking. Yet President Trump’s chaotic presidency is creating new worries for financial markets beyond typical concerns such as corporate earnings and economic growth. Markets that normally shrug off political shenanigans are now pricing in the possibility that Trump himself is the biggest threat to profits and prosperity.
Trump is obviously distressed about the recent stock-market selloff. Even with monster gains on Dec. 26, when the Dow Jones Industrial Average rose by 1,086 points—the most ever in a single day—stocks are still down 10.6% in December. And they’re headed for the worst year since the crash in 2008. What Trump doesn’t seem to realize is that he is personally becoming a bigger and bigger cause of the selloff. And each reactionary Trump twitch aggravates the problem.
Treasury Secretary Steven Mnuchin recently called the CEOs of the nation’s biggest banks to ask how stable their institutions are doing. Then he tweeted the happy news that the banks have “ample liquidity available.” Nobody was worried about bank liquidity before Mnuchin brought it up. Now people are worried. If the nation’s top financial policymaker thinks he needs to ask banks whether they have enough money, something must be wrong.
Trump has been seething about interest rate hikes by the Federal Reserve, and asking whether he can fire Fed chair Jerome Powell, whom he appointed in 2017. The Fed isn’t perfect, and some economists think it might make sense for the Fed to slow its pace of hikes. But rates are still well below historical norms and there’s broad agreement that the Fed is generally doing the right thing. Except for Trump, who apparently thinks the Fed should goose the stock market indefinitely, so it boosts his approval rating.
This comes amid a partial government shutdown Trump said he would be “proud” to trigger, and a trade dispute with China that is raising costs for businesses and consumers, for no obvious gain. Trump seems to think he can jawbone markets higher, or have his minions do it for him—similar to the way he can promise a border wall and win enough votes to get elected president.
Interfering with the Fed
But markets aren’t that gullible, and they’re now sending Trump a message he ought to heed: Get your act together. Markets largely tolerated Trump’s disruptive behavior during the first 18 months of his presidency, in part because there were countervailing goodies such as a sharp cut in the corporate tax rate and pro-business deregulation. But those stimulants have worn off and markets are now focusing on the damaging part of Trump’s mayhem strategy.
Trump is blatantly trying to interfere with Fed policy by publicly threatening Powell’s job security if he continues raising rates. The Fed is perhaps the only institution in Washington not tainted by political bias. Trump wants to end that and draw the Fed into his swamp. Since the Fed has more power over the economy than any other body, markets are right to be worried.
Trump is also driving markets lower with his protectionist trade policy, while trying to wave a shiny balloon with the other hand and distract attention. This works with some groups of voters, who like tough talk and don’t care about policy implications. But markets are the ultimate reality check, and they are now punishing Trump (and the rest of us) for trying to pretend bad outcomes are successes.
Adding to the cacophony are Trump’s knee-jerk decisions on withdrawing troops from Syria and Afghanistan, the protest resignation of Defense Secretary James Mattis, uncertainty about the shutdown and the dumbing-down of the entire Trump cabinet. Markets normally do a good job of filtering out political news that’s not relevant to the corporate sector, but that may be changing as Trump seems increasingly erratic and unaware of the damage he’s causing.
Every investor knows there’s one simple thing Trump should do about financial markets: Shut up. Stop bashing the Fed. Stop sending suck-up Cabinet secretaries out to endorse foolish policies. Stop commenting on the stock market at all. But Trump can’t shut up, and markets will have to live with that. Just as Trump will have to live with the ramifications of his own mouthiness.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman