Mnuchin warns of a market drop

Published on Saturday, 21 October 2017 20:13
Written by Philip Bump

President Donald Trump has bragged about the growth in the stock market more than 30 times since his inauguration. The most recent occasion was on Tuesday evening when he celebrated the Dow Jones industrial average having topped 23,000.

There are two asterisks that should accompany that tweet. The first is that the Dow ended up dropping back below 23,000, a reminder that the enthusiastic upward arrow in Trump’s tweet is not an inevitability. The second is that starting the data at the beginning of 2015 makes it seem as though the market had been flat for an extended period of time. In fact, the market’s been on a run since 2009.

The point of the tweet isn’t to inform the American people about a new high in the market. (A bit over half of the country has money invested in the market in some form.) Instead, Trump uses the stock market the way other presidents might use approval polling: as a sign that he’s doing the right thing.

“Markets continue to like the policies, action, and vision of @POTUS.” - Kellyanne Conway (@KellyannePolls) Feb. 15, 2017

He and his team have made this argument explicitly. When Trump is describing the successes of his administration, he invariably mentions the growth in stock indexes or, more recently, the increase in valuation that growth represents. (This may be because, while the post-election gains were once unusually high, they’re now only the third-largest to follow a presidential election over the past 30 years.) Characteristically, this is a reversal from his opinion on the market’s growth before the election, when it was “free money because the rates are so low. It’s an artificial market. It’s a bubble.”

As long as the market goes up, Trump feels as though he’s successful - regardless of what the #fakenews approval polls show. That’s important context when considering a comment from Trump’s treasury secretary this week in a Politico podcast.

“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done,” Steven Mnuchin said. “To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.”

That’s probably true - but it’s an unusual case to make. Generally, administrations make the case that policy is good for Main Street, not Wall Street, to use a favored locution. Mnuchin’s offering a threat: Do this or the markets will tank. For at least one person, Mnuchin’s boss, that threat is very resonant. It probably resonates, too, with members of Congress, most of whom have their own investments in the markets.

By planting this flag, Mnuchin seems to be offering Trump some cover. If a tax bill falters, Trump can take credit for the market’s rise to that point while shunting the drop-off onto someone else. He’s done this plenty of times before. In Trump’s White House, the buck rarely stops on his own desk.

A significant drop in the market is inevitable. We got a reminder of what that might look like earlier this week as observers marked the 30th anniversary of Black Monday. On that day in 1987, the Dow lost 23 percent of its value - the equivalent of going from 23,000 to 17,700.

If that happens while Trump is president, expect that he won’t tweet about it. If it happens at a moment unrelated to the tax bill, look for a quick scramble to identify a non-Trump cause. He may even do the unthinkable: stop using the markets as his go-to bellwether for how his presidency is proceeding.

As with his poll numbers, Trump thinks that only the positive data is worth owning, much less mentioning.

Philip Bump is a correspondent for The Post based in New York City.



Posted in New Britain Herald, Columns on Saturday, 21 October 2017 20:13. Updated: Saturday, 21 October 2017 20:15.