Trump’s stock market
Donald Trump claims to pay attention to the stock market. Some have even said that Trump uses the market as a barometer of his success (or failure). I find that curious since Trump has to know that the market is losing value due to his tariffs. Yet he is plowing ahead. The market thinks he isn’t bluffing. Trump has to know that tariffs will lead to higher prices on consumer goods, higher prices on housing due to lumber costs rising and lower real incomes. He has to know that since announcing his tariffs that consumer sentiment has fallen every month that he has been in office. It fell in February and is still falling in March. Trump may be surrounded by sycophants who cheer his every move (see his cabinet and Fox) but markets and consumers are definitely not cheering. Trump has said that he wants lower taxes and lower interest rates to offset the tariffs. But that is simply crazy talk, unless he wants a full blown double digit inflationary recession on his hands. Earth to Donald: the Fed is not going to lower interest rates. Rather they are likely to raise them.
Stocks have been falling as Trump has geared up his tariffs. The S&P rose with Trump’s election and has given back all its gains since then falling 4 percent. The Dow has lost over 2000 points. The NASDAQ has lost 7 percent. The question is “Is Trump listening?” He takes credit for a rising market. Is he going to take credit for a falling one?
I have called his tariffs “stupid”. The Wall Street Journal has called them “dumb.” What will Trump do? He will likely blame everyone and every thing but himself. But ultimately it is all on him. It will be Trump’s inflation. It will be Trump’s recession no matter what he says. He claims that the tariffs are to stop the flow of fentanyl and illegals from Mexico and Canada. Huh? What flow of fentanyl and illegals from Canada? Trudeau called both Trump and the tariffs “dumb.” Trump wasn’t pleased. He actually said that he wants to force a recession in Canada to force companies to move their facilities to the States. He will lift the tariffs only if production is shifted from Canada to the United States. The Canadians are likely just to get ticked off and impose reciprocal tariffs, cut off gas, oil and electricity to the US and look for other trading partners.
As to Mexico, they sent 10,000 troops to the border. The flow of illegals is down to a trickle and yet Trump is going forward with the tariffs. Like Canada, Trump wants to pressure firms to move their production from Mexico to the US. Perhaps this is why he doesn’t just renegotiate the trade agreement with Mexico and Canada. The trade agreement will lower all tariffs but leave production in Mexico and Canada. In the meantime, Mexico will pursue other trade partners. If countries have learned anything, Trump cannot be trusted.
February was a bad month for the markets. Forty percent of the earnings on the S&P 500 comes from overseas operations. Yet Trump took little notice. Trump says he cares about the markets but that doesn’t show in his actions. I don’t think he can take the Biden way out in blaming all his woes on the previous administration. It won’t be Biden’s inflation. It won’t be Biden’s recession. It will be Trump’s. The markets have been called overvalued but are now slipping into correction territory. Much of the volatility of the market is laid at the feet of the non-professional investors. Well if they panic and start to sell, then the market could be in for a significant correction.
For every 5 point increase in tariffs corporate earnings fall by 2 percent. Thus, Trump’s 25 percent tariffs would translate to a 10% fall in market valuations. The markets have been volatile going up when Trump delays implementation of tariffs and down when he threatens to use them. With Trump’s reciprocal tariffs on every country that trades with America, look for even more market volatility. Let’s hope that Trump is bluffing because if he is not, look for a significant market correction followed by an economic downturn and inflation. And Donald, it won’t be Biden’s fault.
haroldblackphd.com 