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The Finance 202: Trump bears some blame for summer’s two biggest stock selloffs – Washington Post

THE TICKER

Without anything in the way of legislative wins to tout, President Trump has demanded credit instead for a surging stock market. How much he deserves remains a point of debate

But credit cuts both ways. And after markets swooned yesterday over intensifying concern with the North Korea crisis, this much is also clear: The president has been at least partially responsible for the two biggest stock sell-offs of the summer. The Dow lost 204.69 points, or .9 percent, on Thursday, after Trump doubled-down on inflammatory rhetoric aimed at North Korean dictator Kim Jong Un. (Responding to criticism of his pledge to bring “fire and fury” on North Korea if its regime continues leveling threats, Trump issued a new one: “Frankly, the people who were questioning that statement — was it too tough? Maybe it wasn’t tough enough,” Trump said, adding “things will happen to them like they never thought possible” if the country attacks the U.S. or its allies.)

The New York Times’s Landon Thomas Jr. reports on the market response: 

After a record-breaking run of buoyant market behavior, investors appeared unnerved on Thursday by a series of provocative remarks by President Trump and increasing tensions with North Korea.

The tech-heavy Nasdaq 100 index closed the day down 2.13 percent, and the broader Standard & Poor’s 500-stock index fell by 1.45 percent as investors sold out of such high-flying stocks as Amazon, Facebook and Netflix. It was the sharpest daily decline in the benchmark S.&P. 500 since May 17.

On May 17, the market had its worst day in eight months — with the Dow shedding 373 points for a 1.8 percent decline — on the shock of Trump firing then-FBI director James B. Comey. Investors dumped stocks as they whispered about a destabilizing chain reaction in Washington that could lead to impeachment. 

The markets may also react negatively today to this Trump tweet, which was just published:

Precise blame was harder to assign Thursday. Some market watchers say after a historic run, equities were due for a correction and only needed a proximate cause to supply a shove. 

The Wall Street Journal’s Akane Otani

Investors have been pointing to a number of factors that could drive stocks lower, including valuations that are elevated relative to historical levels, and an uncertain outlook for monetary and fiscal policy.

The rhetoric around North Korea helped spark what many investors refer to as a healthy selloff in stocks, said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.

“I think the market was looking for an excuse to sell off, and this was a good excuse,” Mr. Wren said.

Notably, the CBOE Volatility Index, Wall Street’s so-called fear gauge, spiked roughly 44 percent to 16.12, its highest level since Trump’s election. And gold, a safe haven, closed at its highest price in two months. To determine whether the volatility will persist, one analyst recommends checking the weather report in Bedminster, N.J., where Trump is ensconced at his private club, halfway through a two-week vacation. Appearing on CNBC, RiskReversal.com co-founder Dan Nathan said if its raining there, suggesting Trump will be stuck inside with little to do but continue sowing discord via Twitter, “then I think I think you strap it on and buy some puts.” 

Whatever measure Trump is owed for unleashing the rally that followed his November victory, his agency in shaping the market’s performance has shifted unmistakably since. Back on Feb. 9, for example, Trump announced he’d be revealing “something phenomenal in terms of tax” within three weeks. Investors believed him, and stocks rallied to new highs. “Stocks are ripping because of President Trump’s comments,” R.J Grant, direct of equity trading at KBW told the Journal at the time, adding he noticed a surge in the S&P 500 and financial shares “almost exactly when those comments hit the tape.” 

We now know nothing — phenomenal or otherwise — was forthcoming then. Six months later, the promised tax code overhaul has barely budged. So investors have learned to stop making decisions on the assumption Trump’s pronouncements correlate to policy outcomes. The president only commands the market’s attention now when he’s threatening destruction. 

(Publishing note: The Finance 202 is going dark next week. Assuming the world as we know it survives, we’ll be back Tuesday, August 22.)

— There’s plenty to worry about a lot closer to home, and Trump offered a reminder of that Thursday. Amid fresh threats to the North Koreans, the president also stoked his latest intramural grudge by piling more criticism on Senate Majority Leader Mitch McConnell (R-Ky.). Trump has been escalating a charge that McConnell owns the blame for the failure of the party’s Obamacare repeal drive. Trump’s pique originated with comments McConnell made earlier this week to a hometown crowd suggesting the president harbored unrealistic expectations for the pace of congressional action. Trump has responded by taunting the Senate’s top Republican on Twitter, adding this on Thursday: 

Asked later in an exchange with reporters whether McConnell should step down, Trump responded, “I’ll tell you what, if he doesn’t get repeal and replace done and if he doesn’t get taxes done, meaning cuts and reform, and if he doesn’t get a very easy one to get done, infrastructure — if he doesn’t get them done, then you can ask me that question.” That is jaw-dropping stuff. Or it should be. It’s difficult to imagine any previous president saying as much about a leader of the opposite party, much less his own. 

— Souring already fragile relationships on what’s meant to be his own team won’t help Trump steer dicey negotiations coming next month over the debt ceiling and a government funding bill — which Trump hopes will include money for his signature border wall. Beyond those must-pass but still contentious items, Trump desperately needs to secure his first major legislative victory, one that’s past due by historical standards.  As CNBC’s John Harwood notes

On tax cuts, Republicans face the same internal divisions that sunk them on health care. With 2018 midterm elections looming, however, Trump’s criticism of McConnell and others won’t preclude action.

“The survival instinct on both sides is going to drive them to do something on taxes,” says former GOP lawmaker Vin Weber.

But turning on his allies now curbs his ability to shape the direction of an effort that’s dauntingly complex under the best of circumstance.

“Trump has now forced many GOP senators to choose: Trump or McConnell,” observes Steve Bell, a former top GOP Senate aide now at the Bipartisan Policy Center. “McConnell, if he wishes to challenge Trump on a major measure, will win a majority of the GOP caucus.”

Economists surveyed by the Wall Street Journal see a 22 percent chance the government will shut down at the end of next month and a 6 percent chance of a default on debt payments, double the odds that calamity was pulling down earlier this summer. The Journal’s Josh Zumbrun: The survey pointed to rising angst about land mines awaiting lawmakers when they return from their August recess. Two crucial fiscal deadlines are drawing nearer: The Treasury has estimated Congress must act by Sept. 29 to address the nation’s debt ceiling, and Sept. 30 is the end of the fiscal year, and thus the deadline for Congress to authorize legislation to keep the government functioning when the new fiscal year begins Oct. 1. Similar showdowns have rocked Wall Street in recent years. Though calamities were averted, that’s no guarantee of a clear path now.

The White House plans to release a three-to-five page document in early or mid-September outlining their framework for a tax overhaul, three sources tell Reuters. But in the latest signal the administration remains badly behind its own timeline for fall action, the outline will not come along with actual legislative text. David Morgan reports: “But it could provide a starting point for a tax bill. It would lay out areas of agreement between the Trump administration, the Senate and the House of Representatives, and could also include input from discussions with Democrats… Corporate lobbyists and independent analysts say tax legislation, if it can move forward at all, is unlikely to be approved before early 2018.”

Sen. Elizabeth Warren (D-Mass.) wants the big banks to stop hiding behind their trade associations and declare themselves publicly on the Consumer Financial Protection Bureau’s arbitration rule, the American Banker reports. She sent letters to 16 of the biggest institutions asking them to state their position. Killing the rule, which would allow consumers to sue their banks, has become a major industry priority. The House passed a measure to do away with it, and the Senate will try to follow suit next month, though the outcome is uncertain. 

Under pressure from a series of new revelations even as it tries to move beyon the fake-account scandal that erupted nearly a year ago, Wells Fargo is planning a shake-up that likely includes the exit of its non-executive chairman, Stephen SangerThe Wall Street Journal’s Emily Glazer: “Directors are aiming to make final decisions on any changes by Labor Day, some of the people said. Mr. Sanger is expected to step down before the bank’s shareholder meeting next spring, one of these people said. Vice Chair Elizabeth Duke, a former Federal Reserve governor, is then likely to take the top spot, some of these people said. Discussions about board changes have been under way for a few months, spurred by dismal results at the bank’s shareholder meeting. They also come against the backdrop of calls in Washington for even more dramatic action at the bank.”

Benchmark Capital is suing former Uber CEO Travis Kalanick in a bid to boot him from the company’s board. The Wall Street Journal’s Greg Bensinger reports: “The lawsuit on Thursday alleges Mr. Kalanick defrauded directors into giving him more control over the board by hiding a range of ‘inappropriate and unethical directives.’ The allegations center around a decision in June 2016 by Mr. Kalanick to expand the board to 11 seats from eight, effectively giving him control over the designation of those additional seats, the firm said.”

Thursday’s stock market rout knocked Jeff Bezos from his position as the world’s second richest person. According to Bloomberg’s Billionaires Index, the Amazon.com founder (and Post owner) lost $2 billion on the day, bringing his net worth down to $82.2 billion. The 500 richest people in the world together lost about $43 billion. 

The Fed may or may not have 6,200 tons of gold, valued at roughly a quarter-trillion dollars, stashed 80 feet below the streets of Lower Manhattan. The Wall Street Journal’s Katy Burne: “The Fed tells visitors its basement vault holds the world’s biggest official gold stash and values it at $240 billion to $260 billion. But ‘no one at all can be sure the gold is really there except Fed employees with access,’ said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has ‘never in its history provided any proof.’ Mr. Manly is among gold aficionados who wonder if the bank is hiding something about what it’s hiding. Other theorists suspect the gold beneath the New York Fed’s headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices.”

From The Post’s Scott Clement and Emily Guskin: Polls show mixed support for military action against North Korea, but suggest it could rise:

Coming up

  • Sarah Badawi from the Progressive Change Campaign Committee moderates a panel on Saturday on “How Progressives are Taking Back the Populist Narrative and Going on Offense on Infrastructure” at the Netroots Nation conference in Atlanta.
  • Americans For Prosperity holds its 11th annual Defending the American Dream summit in Richmond, Va. on August 19. 
  • Congress is on recess until September 5.

From The Post’s Tom Toles: “Suddenly, Trump starts to see Pence in a slightly different light:”

 

Here’s what happened after a driver spilled hundreds of pizzas across a highway: 

President Trump said his “fire and fury” comments on North Korea ‘may not be tough enough’:

President Trump criticizes former Presidents Obama, Bush and Clinton for their handling of North Korea:

 

President Trump airs his grievances with Senate Majority Leader Mitch McConnell (R-Ky.): 

Here are four politicians President Trump has targeted on Twitter: 

Watch Stephen Colbert’s take on President Trump’s feud with McConnell:

The Finance 202: Trump bears some blame for summer’s two biggest stock selloffs – Washington Post}

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