Wall Street has spent more than a year learning to take nerve-rattling headlines from Washington in stride. But as special counsel Robert Mueller’s investigation closes in on the White House, investors may want to start keeping closer track of the threat the probe into Russian meddling in the 2016 election poses to the Trump administration.
An artificial intelligence-powered index — launched this week by a New York-based start-up called GeoQuant — proposes to help them do that. The Mueller Risk Index produces a daily reading of the gathering danger to the president’s grip on power by incorporating a range of sources, including breaking news, polling and legal filings, according to GeoQuant CEO Mark Rosenberg. Think of it as a political VIX — or a doomsday clock for the Trump White House.
After plateauing over the last two months of 2017, the index has been inching up steadily this year and stands at a record high of 51.35 on a 100-point scale.
See it here:
Eyeballing the chart, it’s clear that over a year-long window, the correlation between the measure and the rollicking S&P 500 is weak at best: The stock market has powered steadily higher as Trump’s potentially destabilizing legal headaches have mounted. But Rosenberg, a Berkeley-trained political scientist who teaches political-risk analysis at Columbia University, says to look smaller. In the two-day period following a major turn in the Russia scandal, stocks dip and the dollar strengthens. (Specifically, over nine key events, the S&P dropped by an average of .11 percent over two trading days, while the dollar index rallied by an average of .13 percent.)
Here’s the chart of the dollar’s performance:
Rosenberg says the index should continue to rise through March before flattening out in April. And while most of the developments that shape its trajectory issue from the black box of Mueller’s investigation, the midterm elections loom large as a major fork in its path. If Democrats reclaim control of the House, the index will surge to 58.18, and if Republicans manage to defy expectations and hold on, it will drop to 46.60. “We have very little insight into the legal variables,” Rosenberg says. “But the balance of political power will determine the ultimate impact of the Mueller investigation.”
Last May, the revelation that Trump had leaned on former FBI director James Comey to back off a probe of his former national security advisor, Michael Flynn, prompted one of the stock market’s sharpest selloffs of the year. Subsequent turns of the screw in the Russia saga drew more muted market responses.
But it remains on Wall Street’s radar. In a note to clients on Monday, Capital Alpha’s Charles Gabriel wrote that the risk of a Washington surprise rattling the markets has receded, though “the possible exceptions to this could come from ‘bolt out of the blue’ geopolitical events or a finding of Trump/White House obstruction from Special Prosecutor Robert Mueller.” Assessing lingering political risks, Greg Valliere of Horizon Investments this week pointed to the “Big One: the near-certainty of more indictments from Robert Mueller, who has some former Trump aides singing like canaries, paving the way for Mueller to move up the chain of command and penetrate Trump's inner circle.”
And in evidence that investors are giving the legal filings close reads, shares of Citizens Financial Group shed 5.6 percent on Monday after it was associated with a loan described in Mueller’s latest indictment of former Trump campaign chairman Paul Manafort.
When it comes to big calls, GeoQuant has an imperfect record this year predicting Washington outcomes. The firm accurately called the failure of the GOP’s push to repeal Obamacare. But in a miss Rosenberg chalked up to its model over-learning the lesson of that episode, it maintained a forecast until late in the year that the party’s tax-cutting effort would similarly fall short. He said the firm hasn’t performed major surgery on the model since. “One of the nice things about big data is that it corrects organically. We can tweak it at a macro level if something is inaccurate, but we haven’t done that yet,” he said.
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— New Fed chair sees little risk of recession. The Post's Heather Long: "He said the recent stock market jitters don't worry him, and he reiterated that the Fed intends to raise interest rates at a slow and steady pace — similar to its moves under his predecessor, Janet L. Yellen. 'My personal outlook for the economy has strengthened since December,' Powell said, adding that he has little concern about a recession any time soon. 'I don’t see [the recession risks] as at all high at the moment.'"
Four rate hikes looking likelier. Bloomberg's Craig Torres and Christopher Condon: "Economists said the signal was clear. The economic outlook is improving, and the chairman used the testimony to invite policy makers to reassess their December forecast for three hikes this year."
Economist Tim Duy writes on his Fed Watch blog that Powell was surprisingly hawkish: "Yellen described the policy path explicitly in terms of the dual mandate in both sustaining a healthy labor market and meeting the inflation objective. Now compare that to Powell. The emphasis is no longer on sustaining a healthy labor market. It’s on avoiding an 'overheated economy.' That is a clear shift in policy focus.”
A solid performance. "He followed the tradition that Ben Bernanke started and Janet Yellen perfected of making the testimony as unnewsworthy as possible," Vincent Reinhart, a veteran Fed economist and now chief economist at BNY Mellon AMNA, tells me. "We got the story we’ve already heard from the monetary policy report and the minutes last week... Somewhere else in the briefing book it says avoid getting involved in political fights, so he wasn't willing to talk about immigration or anything in terms of the construction of fiscal policy."
From Ritholtz Wealth Management's Josh Brown:
Powell might be the best of all the Trump appointments— Downtown Josh Brown (@ReformedBroker) February 27, 2018
From Peter Schiff, president and CEO of Euro Pacific Capital:
It's amazing that Powell is being asked so many questions about African American unemployment. Monetary policy can not target ethnic groups. Ironically the congressmen feigning outrage at the Fed are the real reason Black unemployment is so high.— Peter Schiff (@PeterSchiff) February 27, 2018
Powell gets personal. Bloomberg's Jeanna Smialek: "When a Fed chief testifies before Congress, he or she is generally understood to be speaking for the rate-setting Federal Open Market Committee. Powell, however, on several occasions voiced strong personal views. That perhaps injects a new dynamic into the Fed’s communication that’s different from the Yellen era: a Fed leader whose own inclinations are much better known publicly."
Stocks drop. "U.S. stocks suffered on Tuesday their biggest daily drops since the selloff three weeks ago after comments from... Powell revived fears about more interest-rate increases than expected this year," Reuters's Caroline Valetkevitch writes. "The Dow Jones Industrial Average .DJI fell 299.24 points, or 1.16 percent, to 25,410.03, the S&P 500 .SPX lost 35.32 points, or 1.27 percent, to 2,744.28 and the Nasdaq Composite .IXIC dropped 91.11 points, or 1.23 percent, to 7,330.35."
Bond yields jump. "Bond yields rose to the highs of the day as... Powell laid out a case where the Fed could raise rates more than it has forecast," per CNBC's Patti Domm. "Treasury yields rose after Powell's comment just around 10:43 a.m. ET. Yields move opposite price. The 10-year jumped to 2.91 percent. The 2-year yield, the most reflective of Fed policy, briefly rose above 2.27 percent but was back to 2.26 percent."
CNBC's Larry Kudlow:
From the host of Fox's Making Money with Charles Payne:
Any headline that reads "Powell Testimony Sends Stocks lower" would be well off the mark. Fed Chairman Powell has barely spoke this lawmakers use all their time to spout "facts" and try to get the Fed to back their notion of economics. I'm cringing watching this farce.— Charles V Payne (@cvpayne) February 27, 2018
Navy Federal Corporate Economist Robert Frick:
When Powell says that the only sustainable way to boost wages is productivity, has he seen this? Isn't there another missing element, namely employers needing to divert the benefits of productivity to employees? #Powell #wages pic.twitter.com/0UGrsHAmCj— Robert Frick (@RobertFrickNFCU) February 27, 2018
NYT's Binyamin Appelbaum:
Powell did not make the case as forcefully. Perhaps he does not believe it as strongly. But at least some of the market reaction today struck me as paying insufficient attention to the fact that we have a new Fed chairman.— Binyamin Appelbaum (@BCAppelbaum) February 27, 2018
The financial blogger behind Zero Hedge:
The more Powell discusses debt unsustainability, the more the market hears "QE"— zerohedge (@zerohedge) February 27, 2018
— Trump strategy implodes on the Hill. Politico's Brianna Gurciullo: "Trump’s $1.5 trillion infrastructure plan may not pass Congress this year, a key GOP lawmaker said Tuesday — shortly before a Trump-backed proposal to split up the Federal Aviation Administration collapsed as well. Though expected, the two developments delivered major legislative blows for an administration that rolled into office banking on big populist wins on transportation.
Sen. John Cornyn, the Senate majority whip, said Tuesday that passing an infrastructure bill by the end of the year will be a tough task because lawmakers are facing a host of other priorities ... 'I think it's gonna be hard, because we have so many other things to do and we don't have much time,' Cornyn (R-Texas) told reporters."
From The Post's Heather Long:
Senate Majority Whip John Cornyn (R-TX) on infrastructure: "I don't know if we'll have time to get to it."— Heather Long (@byHeatherLong) February 27, 2018
(Cornyn finally says what most people in Washington and Wall Street have been saying for weeks)
and The Post's Erica Werner:
Not clear why they wouldn't have time. What else are they going to be doing all year?https://t.co/7UiuCKVdgF— Erica Werner (@ericawerner) February 27, 2018
Hatch: Congress will backstop NAFTA. Business Insider's Bob Bryan: Sen. Orrin Hatch (R-Utah) "said during a Chamber of Commerce talk on Tuesday that Congress would pass a 'veto-proof' bill to keep the US in NAFTA if Trump decides to try and terminate the deal... Hatch said Trump's threat to pull the US out of the agreement was likely a negotiating tactic, but the threat was still worrying."
— Prime-time for banking bill. American Banker's Ian McKendry: "Senate Banking Committee Chairman Mike Crapo, R-Idaho, said Tuesday that he is hopeful that a bipartisan deal to roll back Dodd-Frank Act regulations will be able to get a floor vote as soon as next week. 'I am encouraged by the support that I tend to see developing on both sides,' Crapo said. 'My hope is that we will see it come forward next week.'"
The liberal Center for American Progress has a new report out that says the bill would "deregulate 25 of the largest 38 banks in the United States and would undermine some key protections for homeowners and homebuyers, while offering crumbs for consumers" and "make the U.S. financial system—and key regional economies—more vulnerable to another financial crisis, potentially putting taxpayers back on the hook to bail out the same banks once again."
— Puerto Rico asks Congress for help. Reuters's Hilary Russ: "The U.S. Treasury has delayed a $4.7 billion post-hurricane loan to Puerto Rico and reduced the amount by more than half, and the resulting financial strain threatens to disrupt essential services, the island’s governor said in a letter asking U.S. congressional leaders to intervene. Congress approved the community disaster loan in October as part of a larger relief package after hurricanes Harvey, Irma and Maria devastated the island, which was already dealing with the largest government bankruptcy in U.S. history. But four months later, the U.S. territory still has not received the loan."
— Mnuchin floats TPP revival. NYT's Alan Rappeport: "More than a year after President Trump abruptly pulled out of the Trans-Pacific Partnership, saying it was a bad deal for the United States, Treasury Secretary Steven Mnuchin said on Tuesday that the United States is discussing rejoining the multilateral trade agreement. Mr. Mnuchin, speaking at an investment summit meeting sponsored by the U.S. Chamber of Commerce, said that renegotiating the trade agreement was 'on the table' and that he had been in talks with other countries about what it would take for the United States to reverse course. 'I’ve met with several of my counterparties and other people, and we’ve begun to have very high-level conversations about T.P.P.,' Mr. Mnuchin said, adding that Mr. Trump would still prefer to do one-on-one trade agreements first. 'It’s not a priority at the moment, but it is something the president will consider.'"
— Dina Powell back to Goldman. Bloomberg's Dakin Campbell and Jennifer Jacobs: "Dina Powell, a former deputy national security adviser to President Donald Trump, is returning to Goldman Sachs Group Inc. and will be a member of the investment bank’s management committee. Powell, 44, was a partner and the firm’s global head of impact investing until being tapped for a White House post at the start of the Trump administration. She’ll focus on boosting relationships with sovereign clients, according to a memo sent to staff Tuesday."
— Carson spends $31k on his office. NYT's Glenn Thrush: "Department of Housing and Urban Development officials spent $31,000 on a new dining room set for Secretary Ben Carson’s office in late 2017 — just as the White House circulated its plans to slash HUD’s programs for the homeless, elderly and poor, according to federal procurement records. The purchase of the custom hardwood table, chairs and hutch came a month after a top agency staff member filed a whistle-blower complaint charging Mr. Carson’s wife, Candy Carson, with pressuring department officials to find money for the expensive redecoration of his offices, even if it meant circumventing the law."
— Kushner's hot water. The Post's Shane Harris and co.: "Officials in at least four countries have privately discussed ways they can manipulate Jared Kushner, the president’s son-in-law and senior adviser, by taking advantage of his complex business arrangements, financial difficulties and lack of foreign policy experience, according to current and former U.S. officials familiar with intelligence reports on the matter. Among those nations discussing ways to influence Kushner to their advantage were the United Arab Emirates, China, Israel and Mexico, the current and former officials said. It is unclear if any of those countries acted on the discussions, but Kushner’s contacts with certain foreign government officials have raised concerns inside the White House and are a reason he has been unable to obtain a permanent security clearance, the officials said."
More, on potential legal trouble: "Within the White House, Kushner’s lack of government experience and his business debt were seen from the beginning of his tenure as potential points of leverage that foreign governments could use to influence him, the current and former officials said. They could also have legal implications. Special counsel Robert S. Mueller III has asked people about the protocols Kushner used when he set up conversations with foreign leaders, according to a former U.S. official."
And he lost his security clearance. The Post's Ashley Parker, Josh Dawsey and Philip Rucker: "Kushner... had his security clearance downgraded Friday, sharply limiting his access to some of the nation’s most sensitive secrets amid concerns raised by the ongoing investigation of his background, two White House officials said Tuesday. Kushner was one of several White House officials who received a memo Friday announcing that because of their interim security clearances, their status was being downgraded from the “Top Secret/SCI” level to the “Secret” level, a far lower level of access to classified information."
The administration's security clearance clean-up also cost four political appointees their jobs at the Commerce Department, The Post's Carol Leonnig and co. report.
— Consumers feel great. AP's Paul Wiseman: "American consumers are the most confident they’ve been since 2000. The Conference Board says its consumer confidence index rose to 130.8 in February, highest since November 2000 and up from 124.3 in January. The business research group’s index measures consumers’ assessment of current conditions and their outlook for the next six months. They feel better about today’s economy than they have since March 2001. Their outlook also improved."
— Goldman comes to Main Street. WSJ's Liz Hoffman and Peter Rudegeair: "Struggling to make money in the postcrisis world, Goldman is pushing into businesses it once dismissed as pedestrian and gimmicky, assembling a suite of banking products for the middle class it hopes will power growth. Goldman 18 months ago began making online loans of a few thousand dollars under the brand Marcus, named after founder Marcus Goldman. Individuals once needed $10 million to get the attention of Goldman’s elite private bankers. Today, customers can open a Marcus savings account with as little as $1. New initiatives under way include checkout-counter loans for shoppers, wealth management and household-budgeting tools for the masses as well as insurance, mortgages and car loans, according to people familiar with the plans."
— Banks take one-time hit from tax law. Reuters's Pete Schroeder: "U.S. bank profits were down 40.9 percent in the fourth quarter of 2017 from a year earlier, due primarily to one-time accounting changes from the new tax law which is expected to boost profits in the long run, the Federal Deposit Insurance Corp said on Tuesday... The brunt of the tax-spurred decline was borne by larger banks, who had already been reporting eye-popping losses at the end of 2017. Large institutions took a disproportionate hit on earnings held abroad and the rewriting of the value on deferred tax assets. Citigroup, for example, reported an $18 billion loss at the end of 2017 thanks to the updated tax law."
JPMorgan says it will boost profits. WSJ's Emily Glazer: "The largest U.S. bank by assets shared new targets and expectations in its annual investor day presentation Tuesday, which for the first time included benefits from changes to the tax law. Most notably, JPMorgan moved its medium-term target—over the next two to three years—for return on tangible common equity, a key profitability metric, to roughly 17% compared with its prior target of 15%."
The bank wants the Fed to ease up. FT's Ben McLannahan: "JPMorgan Chase has urged the Federal Reserve to loosen capital shackles on the biggest global banks, saying that rigid rules drawn up in the wake of the crisis could become a 'barrier to growth' in the world’s largest economy... Tuesday’s call for action from JPMorgan — made at the outset of the bank’s annual presentation to analysts and investors at its Park Avenue headquarters — was the clearest, most direct appeal for relief yet from an individual bank."
Meanwhile, Dimon wants Amazon treatment. Bloomberg's Hugh Son and Jennifer Surane: "The CEO of JPMorgan Chase & Co., which employs more than 250,000 workers, said he’ll call the governor of whichever state Amazon.com Inc. picks for its second headquarters and try to get the same benefits. 'I’m not kidding,' Dimon said. 'You gotta fight for your company, folks, just keep that in mind. If you don’t, no one else does.'"
After record highs in January for expectations on the stock market's prospects, optimism is down, per Bloomberg:
- The Center for Strategic and International Studies holds an event on “Deepening U.S.-India Trade Ties: Focus on States.”
- The Hamilton Project holds an event on “How to Get American Workers a Raise: Policies to Revitalize Wage Growth.”
- The Brookings Institution holds an event on Trump’s trade policy in Asia.
- The Senate, Health, Education, Labor and Pensions committee holds a hearing on the nomination of John F. Ring to be a member of the National Labor Relations Board on Thursday.
From The Post's Tom Toles:
Sen. John Cornyn says a bill that he and Sen. Chris Murphy have introduced would improve the background-check system for gun purchases:
Sen. Amy Klobuchar argues background checks help reduce deaths from domestic violence:
Senate Majority Leader Mitch McConnell said Congress must "at least show some progress: on background checks:
This exclusive video footage shows a confrontation between Trump Organization security guards and building owners: