Here’s a defining split screen for our era: On Tuesday afternoon, as the bull market was tying the record for the longest ever, two of President Trump’s closest associates became felons, with one — his former personal lawyer, Michael Cohen — implicating Trump in directing him to break campaign finance laws.
Investors are all but certain to shrug off the latest Trumpian turmoil today to extend a rally that kicked off on March 9, 2009, thereby setting a record for the longest bull run in history. Here’s what it looks like compared to the other longest rallies, via LPL Financial:
As the market closed in on the longevity record Tuesday, the Mueller Risk Index — an artificial intelligence-powered measure of the danger that the various legal probes closing in on Trump pose to his grip on power — started climbing. It is now pointed toward reaching a recent high by mid-September. See it here:
And stock futures fell in the wake of the Cohen news. Yet Mark Rosenberg, CEO of a start-up called GeoQuant that produces the index, doesn't expect the president’s legal mess to spark a dramatic sell-off. “There’s a certain irony in the market hitting this milestone as all this is happening,” Rosenberg says. “The overall trend since we launched in March has been a gradual increase in the index, which means the risk to Trump from the Mueller investigation is getting higher and higher. But the market has become somewhat inured to the flow of news.”
The disconnect between Wall Street and Washington that has taken hold in recent months extends beyond the president’s legal woes to include his trade offensive: The administration is set on Thursday to continue escalating its confrontation with Beijing by imposing 25 percent tariffs on $16 billion of Chinese imports. Next, if Trump keeps dialing up the hostilities, would be duties on $200 billion of Chinese imports — an intensification that could begin to take a noticeable bite out of GDP.
Some market watchers believe Trump’s trade wars continue to present a leading risk to the stock market, even though investors appear to have either priced in the threat or assumed that the president’s tough talk is mostly just that and tuned it out. “I think the market is taking a sanguine view of the trade conflict, because it sees Trump resolving the conflict with Mexico and the European Union fairly quickly,” says Zhiwei Ren, managing director at Penn Mutual Asset Management. (Politico reports the Trump administration plans to announce Thursday it has reached a breakthrough with Mexico.) “And it assumes Trump wants a quick win with China. I don’t think that’s going to happen.”
Liz Young, a senior investment strategist with BNY Mellon Investment Management, pointed to the resumption of talks between Beijing and Washington this week as a positive sign. “It is not in anybody’s interest to have a full-fledged trade or currency war. I think both sides are trying to make sure something drastic doesn't happen,” she says. And yet, Young added, “I don’t think the U.S. administration is going to come off of this any time soon.”
Others wave off the threat of a U.S.-China trade war they describe as over-hyped. “The level of press on tariffs to the actual impact is way out of proportion, and I say that as a free trader,” Daniel Clifton, head of policy research at Strategas Research, tells me. Clifton pointed to a potential deal with Mexico that would have a “far larger impact on industrial stocks than China.” He says the market is “looking through the noise” and giving Trump “a leash to get a better deal on trade with China.” To his point, the S&P 500 on Tuesday briefly topped its closing record, set back on Jan. 26, before retreating some before the close.
And Washington isn’t just cranking out risk. Last year’s tax cuts helped fuel robust corporate earnings that are powering the market higher. From the Wall Street Journal’s Michael Wursthorn and Akane Otani: “The latest leg of the bull run for the S&P has been driven by booming economic growth in the U.S., as well as renewed strength in quarterly corporate earnings. Investors have also bet that the global economy will continue to expand at a steady pace even amid turbulence in some emerging markets such as Turkey and Venezuela… The gains, aided by the U.S. corporate tax cut in December, deliver a rebuttal to skeptics who have argued that everything from a slowdown in China’s growth to rising U.S. interest rates to intensifying trade tensions would dash the market’s run.”
Andy Sieg, head of Merrill Lynch Wealth Management, made the case to Barron’s last week for ignoring suggestions that the bull market is fated to end soon. Instead, he argued we may be “only 10 years into another 50-year bull-market cycle. The drivers of this bull market are a very powerful extension of the baby boomers’ productive lives, the silver economy, which is powering a lot of economic activity in the U.S. and around the world, and the rise of the millennial generation, which is a larger and even more economically powerful cohort than the boomers. The growth of the middle class in emerging markets around the world will be a lasting, sustained growth engine. And supercharging all of this is the technology innovation cycle, which we see year after year.” In the meantime, Sieg said, investors shouldn’t be “distracted from fundamentals by the day’s headlines or the day’s tweets” out of Washington.
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— Fed minutes could offer hiking clues. Bloomberg's Matthew Boesler: "The last published record of internal deliberations at the Federal Reserve ended on a cliffhanger. An update this week may illuminate U.S. central bankers’ thinking on what is becoming an increasingly controversial topic: the outlook for interest rates next year. That conversation, along with any hints about how they are judging progress as they unwind part of the Fed’s $4.2 trillion balance sheet, will be the main focus for investors when minutes of the policy-setting Federal Open Market Committee’s July 31-Aug. 1 meeting are released Wednesday at 2 p.m. in Washington."
The Fed is alone. Reuters's Howard Schneider and Ann Saphir: “The U.S. Federal Reserve, deep into a cycle of rate hikes it hopes to continue into 2020, now faces emerging risks from abroad that could short-circuit its plans. The threats are modest but growing, from the fragile state of some emerging markets seen in the collapse of the Turkish lira to a slowdown in Europe that could make the European Central Bank delay the expected start of its own rate increases. That would leave the Fed stranded as the only major central bank that is tightening policy, and in effect with three levers at once as it raises interest rates, cuts its asset holdings, and does so in a global environment likely to drive the dollar higher and make it harder on U.S. exporters. . . . Central bankers from around the world gather in Wyoming this week for an annual research conference focused on technical topics of market structure. But when [Powell] addresses the group Friday the attention will be on a broader question: how long can the Fed continue raising rates if it’s the only dancer at the ball?”
Powell privately defends Fed's independence. The Washington Post's Erica Werner and Damian Paletta: “Federal Reserve Chairman Jerome H. Powell, in a private discussion with Sen. Tim Scott last week, said he had not spoken to [Trump] about interest rates and would remain independent from political interference, the Republican senator said. Powell’s comments came after weeks of intensifying public pressure from [Trump], who has repeatedly said he would like Powell and the Fed to keep interest rates low to spur economic growth. ... ‘I asked him specifically about the independence of the Fed, and he reinforced the fact that their goal is to [address] unemployment, our economy, and that is their only objective,’ Scott (R-S.C.) said in an interview. Powell also told Scott, according to the lawmaker, ‘that the president has not weighed in with him at all on interest rates whatsoever, or on any role the Fed has.’”
— Dollar looks likely to stay strong. Bloomberg's Anooja Debnath and Elizabeth Howcroft: “Short-term pain, but the long-term gain penciled in for the dollar is still intact. While the greenback declined on Tuesday after [Trump] reportedly censured the Federal Reserve for raising interest rates, the currency’s outlook is still bullish, according to a growing chorus of money managers. The dollar has strengthened more than 4 percent against the euro this year as the Fed raised borrowing costs twice and looks on course to increase again in September as well as December. Benchmark 10-year Treasuries now yield about 250 basis points more than comparable German bunds, close to a record high, helping to attract funds into the dollar.” Yet Bloomberg also explores the possibility that Trump intervenes to weaken the dollar in order to trim the U.S. trade deficit — a scenario that's gained some consideration on Wall Street.
— Pressure mounts on Trump. The Post's Dan Balz: "No day during [Trump’s] 19 months in office could prove as dangerous or debilitating as Tuesday. Everything that happened in a pair of courtrooms hundreds of miles apart strengthened the hand of [Mueller] and weakened that of the president of the United States... Tuesday’s convictions could send two people who have had close relationships with Trump to prison for several years, while one of them brought the investigation to the doorstep of the White House... If the past months have seemed increasingly hot, the coming months could be hotter still — there’s little doubt that the Trump presidency has now entered more treacherous territory, and no one can know where it will end."
Impeachment calls are possible but legal charges unlikely. The Post's Roz Helderman, Matt Zapotosky and Devlin Barrett: "The assertion by [Trump]’s former lawyer that he broke campaign finance laws at the direction of then-candidate Trump could spark calls for impeachment hearings — but probably will not have any legal consequences for the president while he is in office, according to legal analysts. Michael Cohen, who spent a decade as a lawyer for Trump, told a judge Tuesday that he was directed by Trump to coordinate payments to two women designed to prevent them from disclosing alleged affairs with the real estate mogul before the presidential election, in violation of campaign finance law. Such an explosive assertion against anyone but the president would suggest that a criminal case could be in the offing, but under long-standing legal interpretations by the Justice Department, the president cannot be charged with a crime."
- “Michael Cohen says he worked to silence two women ‘in coordination’ with Trump to influence 2016 election.” The Post's Devlin Barrett, Carol D. Leonnig, Philip Bump and Renae Merle.
- "Manafort convicted on 8 counts; mistrial declared on 10 others.” The Post's Matt Zapotosky, Lynh Bui, Tom Jackman and Devlin Barrett.
“Trump’s company approved $420,000 in payments to Cohen, relying on ‘sham’ invoices, prosecutors say.” The Post’s Carol Leaning and Michelle Ye Hee Lee.
— Kudlow partied with publisher linked to white nationalists. The Post's Robert Costa: “The publisher of a website that serves as a platform for white nationalism was a guest last weekend at the home of [Trump’s] top economic adviser, Larry Kudlow. Peter Brimelow attended the gathering, a birthday bash for Kudlow, one day after a White House speechwriter was dismissed in the wake of revelations that he had spoken alongside Brimelow on a 2016 panel. Brimelow, 70, was once a well-connected figure in mainstream conservative circles, writing for Dow Jones and National Review. But over the past two decades, he has become a zealous promoter of white-identity politics on Vdare.com, the anti-immigration website that he founded in 1999. ... Kudlow said Tuesday that Brimelow was a guest at his birthday party at his Connecticut home and is someone he has known ‘forever,’ going back to their work in financial journalism. Kudlow expressed regret when he was described details of Brimelow’s promotion of white nationalists on Vdare.com.”
— U.S., China resume talks despite low expectations. Reuters's David Lawder: "U.S. and Chinese officials are set to resume contentious trade talks on Wednesday under the cloud of a prediction by [Trump] that there would be no real progress. The discussions among mid-level officials could set a framework for further negotiations as each country prepares to hit the other with new tariffs on Thursday in a deepening dispute over China’s economic policies... The two days of meetings are the first formal U.S.-China trade talks since U.S. Commerce Secretary Wilbur Ross met Chinese economic adviser Liu He in Beijing in June... The talks on Wednesday and Thursday will led by lower-level officials, Treasury Undersecretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen. Deputy USTR Jeffrey Gerrish is also expected to participate."
— Auto imports report could be delayed. WSJ's Jacob M. Schlesinger: “The Trump administration is pushing back its timetable for completing a controversial investigation into whether to impose tariffs on auto imports, as officials try to negotiate agreements with some of the world’s largest car exporters. [Ross] told reporters in late July that he would complete his study and recommendations on the possible national security threat from automotive imports ‘probably sometime in the month of August.’ But in an interview Monday with The Wall Street Journal, Mr. Ross said it is now ‘not clear the report will be out at the end of the month.’ He said the delay was ‘in view of the negotiations’ ongoing with the European Commission, Mexico and Canada. Mr. Ross also suggested that it was taking longer than anticipated to sift through the reams of material submitted by auto makers in the U.S. and around the world opposed to the prospect of new tariffs pushing up the costs to consumers and disrupting global supply chains.”
— Nafta announcement nearing. Politico's Megan Cassella and Sabrina Rodriguez: “The Trump administration is planning to formally announce on Thursday that it has reached a breakthrough in NAFTA talks with Mexico, clearing the way for Canada to rejoin negotiations to modernize the free trade pact, three sources close to the talks told Politico. The sources said time has been cleared on the White House schedule for the announcement, where [Trump] is expected to be in attendance. Officials are expected to announce that the U.S. and Mexico, which have been meeting for the past several weeks, have made enough progress on various two-way issues to be able to announce what one source described as a ‘handshake’ deal. The announcement is also expected to include details of when Canadian officials will be returning to Washington to resume talks with the other two nations.”
— Treasury announces Russia sanctions. WJS's Ian Talley: “The Trump administration on Tuesday levied new sanctions against Russian firms it accused of violating trade bans on North Korea and breaches of U.S. laws against cooperation with Russia’s intelligence services. Combined, the actions underscore a recent escalation in U.S. economic pressure against Moscow as Congress seeks to impose new sanctions against Russia and the administration tries to show lawmakers it is committed to punishing the Kremlin for U.S. election interference and other acts Washington says undermine U.S. foreign policy.”
More sanctions are possible. Reuters's Patricia Zengerle and Doina Chiacu: “Washington is prepared to impose more economic pain on Russia if it does not change its behavior, Trump administration officials said on Tuesday, as U.S. lawmakers pushed for stronger measures to counteract ‘malign’ Russian activities. ‘Though Russia’s malign activities continue, we believe its adventurism undoubtedly has been checked by the knowledge that we can bring much more economic pain to bear using our powerful range of authorities — and that we will not hesitate to do so if its conduct does not demonstrably and significantly change,’ Acting Deputy Treasury Secretary Sigal Mandelker told the Senate Banking Committee.”
— Strong results continue for retailers. WSJ's Suzanne Kapner and Allison Prang: “Retailers extended their run of good news on Tuesday with Kohl’s Corp. and the parent of T.J. Maxx reporting strong quarterly results. Kohl’s sales excluding newly opened or closed locations rose 3.1% in the three months to Aug. 4... Americans are spending more on everything from jeans to handbags to home furnishings as rising wages and lower unemployment boost disposable income. The spending spree is helping retailers recover after several difficult years. Last week, Walmart Inc. said its quarterly sales rose at the fastest pace in more than a decade. Other retailers, including Nordstrom Inc. and Home Depot Inc., also reported strong results.
— Telsa board mostly silent. The Associated Press's Ken Sweet and Tom Krisher: “For years, Tesla’s board remained almost invisible, staying behind the curtain as superstar Chairman and CEO Elon Musk guided the electric car maker to huge stock price increases. Now, given Musk’s recent questionable behavior, experts say it’s time for the board to step onstage and take action on the company’s leadership... Yet Tesla’s nine-member board, which includes Musk and his brother, Kimbal, has largely been silent, save for forming a three-member committee to decide on the go-private plan that has already drawn scrutiny from U.S. securities regulators. At least five of the company’s eight non-executive directors have strong ties to Musk or one of his other companies, throwing their independence into question."
SEC fears backlash. Bloomberg's Ben Bain: "For months, the U.S. Securities and Exchange Commission had been quietly and methodically scrutinizing Tesla Inc. Then Elon Musk tweeted, forcing the SEC to change its approach in an investigation that’s now putting intense pressure on the regulator. Actions probed by the SEC aren’t typically so public and the agency prefers to keep it that way until it concludes whether laws were broken. The opposite has happened with Tesla, which has quickly become the highest-profile inquiry of SEC Chairman Jay Clayton’s tenure. One resulting sentiment within the SEC: the agency will take a beating from politicians and in the media if Musk avoids a sanction."
— Uber finds a chief financial officer. The New York Times's Kate Conger: “After a yearslong search, Uber has finally found a chief financial officer as it advances toward an initial public offering. The ride-hailing company said Tuesday that it had hired Nelson J. Chai, 53, a former executive at Merrill Lynch and CIT Group, to be its new chief financial officer. The appointment fills a prominent void in Uber’s executive suite: The job had been vacant since Brent Callinicos departed in 2015. Picking a chief financial officer is crucial for Uber because the company has said it plans to go public by the end of 2019, in what is likely to be one of the biggest-ever technology I.P.O.s.”
— Warren unveils anti-corruption plan. The Post's Dave Weigel: "If Sen. Elizabeth Warren (D-Mass.) has her way, federal judges will face steep new ethics standards, high-ranking government officials will be banned from ever becoming lobbyists — and any candidate for president will have to release at least eight years of past tax returns. 'Padlock the revolving door between big business and government,' Warren said Tuesday at the National Press Club... Warren’s speech, focusing on the Anti-Corruption and Public Integrity Act that she’s introducing this week, highlighted a set of transparency reforms that would affect everything from how lobbyists have to report meetings with members of Congress to what would be accessible in Freedom of Information Act requests...
"Overturning the Supreme Court’s ruling in Citizens United — a talking point on the left for years, advanced by presidential candidates — would be 'not nearly enough' for Warren... Even after lobbyists are banned from giving campaign contributions — one of Warren’s proposals — it would be necessary to 'prosecute companies that knowingly mislead government agencies and stop the practice of companies paying for sham "studies" designed to derail the rulemaking process.'"
— Duncan Hunter, his wife indicted. The Post's Matt Zapotosky and Dan Lamothe: "The Justice Department on Tuesday charged a Republican congressman and his wife with using more than $250,000 in campaign funds to pay for family vacations, theater tickets and other personal expenses. Rep. Duncan D. Hunter (Calif.) and his wife, Margaret, were charged in a 47-page indictment that details how they allegedly used campaign money to live beyond their means, funding trips to Italy, Hawaii and other places, as well as school tuition, dental work and theater tickets. The Justice Department said in a news release that the couple also allegedly spent tens of thousands of dollars on more modest items, such as golf outings, video games and even home utilities... [Hunter] and his wife, who was paid $117,000 from the campaign for work between 2010 and 2017, are scheduled to be arraigned in court Thursday."
- The Office of the U.S. Trade Representative holds public hearings on proposed tariffs on Chinese goods through Aug. 24 and on Aug. 27.
- Federal Reserve Board Chair Jerome H. Powell delivers a speech at the Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole, Wyo., on Aug. 24.
- The Senate Homeland Security and Governmental Affairs Committee holds a hearing in St. Louis on the effects of tariffs on Missouri's manufacturing and agriculture on Aug. 27.
From The Post's Tom Toles:
Beijing hopes for “good result” despite Trump's trade negativity:
View from helicopter shows India's Kerala underwater:
Iran unveils new fighter jet: