‘Trump rally’ hits roadblock on Wall Street
The “Trump rally” has morphed into a presidential plunge.
The total paper gain of U.S. stocks since Election Day has been sliced from $8.7 trillion at the market’s Jan. 26 all-time high to $5.3 trillion, according to Wilshire Associates. In a span of nine weeks, investors have lost $3.4 trillion in market wealth. Put another way, 40 percent of the rally since President Donald Trump was elected has been erased.
A sizable chunk of that decline has come since early March, when the president announced 25 percent tariffs on steel imports into the U.S., threatened China with up to $60 billion in tariffs and took to Twitter to blast Amazon.
When stocks were hitting record highs, Trump’s marketfriendly, profit-boosting tax cuts and push to slash business red tape were lauded.
But there was one nagging worry — and a big potential risk — to the bullish story line: Investors warned that the market wouldn’t like it if the president followed through on campaign promises and tactics they viewed as threats to the economy and company profits, such as his tough tariff talk, penchant for protectionism and willingness to pick fights on Twitter with CEOs of America’s most successful companies.
That time seems to have arrived. And so has the market backlash.
“It’s the Donald Trump sell-off,” says David Kotok, chief investment officer of money management firm Cumberland Advisors. “(A) bullying and belligerent president is undoing all the benefits of tax cuts, repatriation and fiscal stimulus.”
Once-skyrocketing stock prices have gone into a steep swoon that has left all the major U.S. indexes in the red for the year and down 10 percent or more from their highs, which puts the market back in official “correction” territory.
“Investors are starting to learn the hard way that President Trump’s tweets and policies have a downside as well as an upside,” says Chris Rupkey, chief financial economist at MUFG, a global financial group with offices in New York. “If you are looking for a reason for the stock market correction, look no further than the Trump tweets that attack the business model of high-flying market leaders like Amazon and also raises the specter of a trade war with America’s trading partners.”
As feared, the president has followed through on threats to impose tariffs on countries such as China that he says treat the U.S. unfairly. He has unleashed a war of words with a torrent of tweets against Amazon, the online retail behemoth he says gets favorable tax treatment and is putting too many mom-and-pop retailers out of business.
The president’s policies aren’t all to blame for the market’s woes. Stock prices, according to some market watchers, had been rising at an unsustainable pace. The Dow gained 25 percent last year and continued to march higher at the start of 2018. Many market pros had been warning of a correction.
Doug Ramsey, chief investment officer of The Leuthold Group, said Monday’s sell-off was what he refers to as a “tariff tantrum.” Free trade, he says, has been a pillar behind the growth the world has seen since the early 1990s.