Georgia State University

Did President Trump’s Praises of the Stock Market Cause it to Dip? by Maryam Kilani @ Georgia State University

Photo by Bryan R. Smith via Vox

 

There is no question that since Trump was elected, the stock market has experienced a feeling of ecstasy. Trump announced during his state of the union address that over his tenure as president the economy has been expanding significantly. High stock market gains, low unemployment rates, increase in wages, business tax cuts from 35% – 21%, and an increase in 401k. To know how we got here, it is important to know where we are coming from.

In late 2007, housing prices started to decline, and it became apparent that the housing values were highly inflated. People were not able to pay their mortgages, and the economy was crippling. This followed with a decrease in consumer expenditure, banks stopped lending, business revenue decreased, and they started laying people off. Since the Great Depression, Americans lost confidence in the economy, institutions, and the currency. The president at that time, George W. Bush suggested that the federal government increase the money supply so that banks and other financial institutions avoid collapsing. Barrack Obama, Bush’s successor, came to office and continued this massive bank bailout. Even while consumers started to have confidence in the economy, the event that had a significant difference was when the Federal Reserve decided to step in. The Federal Reserve reduced the interest rate to almost zero and bought an enormous amount of assets to make money and credit available throughout the economy.  In other words, the FEDS were telling people that they are free to borrow money and not worry about credit. By early 2010, the economy gained a net one million jobs, 2 million jobs by 2011, 2.8 million jobs by 2014, and 2.5 million jobs by 2015. The unemployment rate had reduced to 4.8% when Obama leaves the office.

When President Donald Trump resumed office, he described the economy like it was in a downturn. With paychecks reducing, jobs being outsourced to China and Mexico, and over 43 million American living in poverty. A year after during his state of the union address, Trump describes the economy to be booming already because of his efforts. This portrayal of the economy is quite impossible to accomplish within a year of being in office. However, amid these, one thing holds true. The stock market value has been significantly higher since Trump’s election; mostly as a result of the healthy economy and the simultaneous growth of other world economies. The Dow – stock market index of top thirty companies-closed above 21,000 on January 26. “The stock market hit an all-time record high over 22,000. It’s going to go higher too-Trump” One way Donald Trump did this is by involving a select group of people-asset managers-  who control trillion dollars of wealth at the world economic forum in Davos to invest in the US economy. So, when they buy shares, the stock market goes up, setting high records for the stock market.

On Friday February 2nd, stock market fell by more than 2% which is the worst week for the stock market in two years. The S & P 500-market capitalization of the top 500 companies at the NYSE fell with a more modest index composite at 2.1%, and Nasdaq-stock market index of common stocks-1.96% respectively. One of the major drivers of this fall is the increase of jobs added to the economy followed by a 2.9% increase in wages. With this data, investors assumed the FED would increase the interest rate due to the high amount of currency circulation. Trump talking about the spiking increase of the stock market in hopes to increase the economy. Another growing concern is the Federal government ‘s need to borrow more money as a result of the tax cut and hastening the date Congress should raise the federal debt limit. Past presidents are known to take caution when praising the stock market. Trump ignored this fact and stands to take the blame for it. “Until now, Trump’s had kind of a free ride in this market and taken so much credit for it, even though so much of it is due to easy money policies from Janet Yellen and the Fed. Now she’s out the door and volatility is back.”-Charles Gabriel of Capital Alpha Partners.

Janet Yellen announced she was going to resign three weeks after Donald Trump nominated Jerome Powell as the new Central bank head. Donald Trump did admit that he wants to keep the federal interest rate low like she did but will maintain it through a like-minded Republican candidate.

This action carried out by Donald Trump is similar to actions carried out by Viktor Orban from the article “the creation of the Frankenstate.” After Victor was elected as president, he reorganized institutions- monetary council, budget council, public prosecutor, state audit office- to favor his policies, and replaced people who did not support his motives. In the end, it is important to remember that the value of stock market does not indicate how the economy performs and checks are necessary for an inflated stock market value.

 

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