The Washington PostDemocracy Dies in Darkness

The tax cuts were supposed to be ‘rocket fuel’ for the economy. Since they passed, the markets are down.

A trader on the floor of the New York Stock Exchange on March 26. (Michael Nagle/Bloomberg News)
Placeholder while article actions load

Stocks closed higher on Tuesday after the Standard & Poor’s 500-index, the Dow Jones industrial average and the Nasdaq composite index each fell by about 2 percent on Monday. Since Dec. 22, those indexes were down 2.9 percent, 2.6 percent and 0.3 percent, respectively.

Why does that date matter? Because it’s the day that President Trump signed the tax cut bill into law — a bill that, according to him, would supercharge the U.S. economy.

“We must cut our taxes, reduce economic burdens and restore America’s competitive edge,” Trump said during a November speech in Missouri. “We’re going to do that, too, and it’s already happening. Look what’s happening with our markets. People get it.”

At that point, the Dow Jones was up 21 percent over the course of his presidency, and it would continue spiking upward for the next few weeks. But Trump promised more.

“These massive tax cuts will be rocket fuel,” he said, “rocket fuel for the American economy.”

Trump’s favorite measure for the health of the economy over the course of 2017 was those same markets, which seemed as though they were never again going to go down. Until they did — about 40 days after that rocket-fuel bill was signed into law. In early February, the markets sank, kicking off what has been a prolonged stretch of volatility.

Between Trump’s inauguration and the signing of the tax cut bill, the Dow, S&P and Nasdaq had increased by 19.9 percent, 15.4 percent and 20.2 percent, respectively. After, through the market’s close on Monday, they had fallen by 1.9 percent, 2.2 percent and 2.7 percent.

They went back up Tuesday but were still down since Dec. 22. Between Sept. 11 and Dec. 22, the Dow, the S&P and Nasdaq rose 11 percent, 7 percent and 8 percent, respectively. During the same number of market days after the bill was signed, they were all down.

At close of market on Monday, each measure was off its 52-week high by at least 9 percent. Before the bill’s signing, none of those indexes had been down more than 3.7 percent off its 52-week high.

Between the signing of the bill and Monday, the indexes had been down on about 46 percent of market days.

Between Trump’s inauguration and the bill signing, the Dow had dropped on 41 percent of days, the S&P on 43 percent and the Nasdaq on 38 percent.

The markets are not the economy, despite Trump’s insistence over the course of 2017 that they were an effective metric to judge his presidency. But it’s certainly the case that the tax bill was meant to aid businesses specifically, with the administration pledging that the cuts would lead to massive reinvestment in those businesses and then to increased employment.

Over the next month, stock prices did soar to new heights. Then they plunged, recovered and plunged again. In some ways, that bolsters Trump’s point. If you pour rocket fuel on something that is already on fire? Things do get a little volatile.