Market can’t ignore latest Trump moves
NEW YORK — The stock market can't ignore Washington politics any longer.
Last year, investors calmly brushed aside every surprise that came out of Capitol Hill or the White House. Whether it was President Donald Trump barring the arrival of travelers from certain countries, firing his FBI director or trying repeatedly to overhaul the health care industry, nothing seemed to knock the market off its record-setting course in 2017.
Now, though, the market is moving sharply in anticipation of policy changes or upon their announcement. Stocks recently have zoomed up and down amid speculation about whether Trump's decision to impose tariffs on imported steel will lead to a global trade war. Late last year, Washington approved big tax cuts for businesses, and investors sent stocks surging.
The difference is that Trump's actions are now aiming at what the market cares most about: corporate profits.
“The politics that matter for the market are the ones that impact the fundamentals,” said Stephen Auth, chief investment officer of equities for Federated Investors. “Which politics have moved the market? The tax deal, and now the tariffs. The other stuff tends to be noise.”
It's easy to see how the tax cuts will affect corporate earnings: Lower tax bills will mean bigger profits, and investors hope the overhaul will encourage companies to spend more to expand. A possible trade war could have just as strong an effect for U.S. companies, but in the opposite direction.
Add in the high emotions Trump generates, and big swings in the market can quickly result.
“Right now, half the country thinks that the president is a lunatic, and they have very little confidence in his rational approach to issues, so they are worried about politics as an issue,” Auth said.
It may take a while to see if the worries about a global trade war were prescient, as other countries mull their options. Trump has already exempted Canada and Mexico from the tariffs and said he will be “very flexible.”
On Tuesday, the president gave the market more to digest with the firing of Secretary of State Rex Tillerson and his decision to block Singapore-based chipmaker Broadcom's takeover of U.S. rival Qualcomm, citing national security issues.
The teaction to Tillerson was muted, certainly not as dramatic as the drop that followed the resignation of National Economic Adviser Gary Cohn, who failed to get Trump to reconsider the tariffs.
The decision to halt the Broadcom bid had a more measurable impact. Qualcomm shares tanked, and analysts raised concerns that other attempts by foreign companies to buy U.S. tech companies could meet the same fate.