The stock market is giving President Trump a lump of coal for Christmas.
All three major indexes shed more than 2 percent on Monday, as the S&P 500 notched its lowest close in 14 months. The tech-heavy Nasdaq is down 2.2 percent this year, and the small-cap Russell 2000 index has lost more than 20 percent from its late-summer high, officially putting it in bear market territory.
The Dow Jones industrial average and the S&P 500, both down more than 7.5 percent this month, are on track for their worst December performances since 1931, in the pit of the Great Depression.
Trump was silent on the latest market down day, extending his pattern of avoiding comment on Wall Street carnage. A year ago this week, he was heralding history-making gains, as his then-imminent signing of a massive tax cut powered stocks higher:
Stocks and the economy have a long way to go after the Tax Cut Bill is totally understood and appreciated in scope and size. Immediate expensing will have a big impact. Biggest Tax Cuts and Reform EVER passed. Enjoy, and create many beautiful JOBS!— Donald J. Trump (@realDonaldTrump) December 19, 2017
From Obama's former senior adviser:
But to the extent the promise of Trump’s tax cuts offered investors a major theme last year, it was replaced this year by the threat of his widening trade war. The president has cast blame elsewhere, a message White House trade czar Peter Navarro carried forward in a CNBC interview on Monday when he identified Federal Reserve policymaking as the primary culprit spooking investors.
“Donald Trump’s instincts are always right on this, and months ago he started pointing out that the Fed was going too far too fast,” Navarro said. He said in the absence of stronger inflation, the central bank should hold off on continuing to raise interest rates. “The only argument I'm hearing for the Fed to raise rates now is somehow they have to exert their independence.”
And the president renewed his Fed criticism in a Monday morning tweet:
It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!— Donald J. Trump (@realDonaldTrump) December 17, 2018
They have some company in trying to wave off more rate hikes from the central bank when the Fed gathers today and tomorrow for its final policy meeting of the year.
“Trump makes very good points, to be honest,” Renaissance Macro Research economist Neil Dutta told Bloomberg. But he notes the president’s pressure campaign could backfire, compelling the Fed to hike in order to avoid appearing to have caved. “If they hike and change nothing else, the stock market will tank as growth expectations decline and Trump vindicated. If they skip, and say they are responding to data, stocks probably catch a bid.”
The Fed is putting extra strain on the market by raising rates as it sells off the assets it added to its balance sheet in the wake of the financial crisis, billionaire investor Stanley Druckenmiller and former Fed governor Kevin Warsh argued in the Wall Street Journal over the weekend. “As we head into 2019, quantitative tightening is expected to accelerate. It has been paired with expectations of interest-rate increases from the Fed—and the timing could scarcely be worse,” they wrote. “This is a time for choosing. We believe the U.S. economy can sustain strong performance next year, but it can ill afford a major policy error, either from the Fed or the rest of the administration. Given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity.”
Given the market freakout, Niskanen Center senior fellow Karl Smith argues the Fed should pause this week, “citing a surge in global uncertainty (brought on by Brexit, civil unrest in France, slowing demand in China and rapidly adjusting energy prices). It could then emphasize both in its statement and in Powell’s subsequent press conference that it is leaving open the possibility of raising rates in January.”
If the Fed follows through, it would be the first time since 1994 it hiked amid such a market performance, Bloomberg's Lu Wang reports: "Right now, the S&P 500 is down over the last three, six and 12 months, a backdrop that has accompanied just two of 76 rate increases since 1980."
Wall Street traders still predict a nearly 70 percent chance of an interest rate hike this week, though that confidence has slipped nearly 8 points since Friday.
What the Fed signals is ahead for 2019 will be as important. Per The Washington Post’s Heather Long: “The expectation for this week is that the Fed will revise its predictions for next year down to two rate hikes, and [Fed Chair Jay] Powell will try to signal in his news conference that the Fed will be ‘data dependent’ and more open to changing course as needed.”
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— Global stocks continue sell-off. WSJ's David Hodari: "Global stocks wavered Tuesday, following a sharp drop on Wall Street at the start of the week amid rising anxieties about the health of global economic growth. U.S. futures pointed to 0.3% gains for the S&P 500 and the Dow Jones Industrial Average at the open, in a mild relief rally after both indexes and the Nasdaq Composite all tumbled 2% Monday. In Europe, the pan-continental Stoxx Europe 600 index was 0.3% lower in late-morning trading, weighed down by a 1.3% fall in its oil-and-gas sector as concerns over rising supply dragged oil prices lower... Stocks sold off more heavily in Asia, where Japan’s Nikkei fell 1.8% and Hong Kong’s Hang Seng traded 1.1% lower."
— New year, new rally? CNBC's Thomas Franck: “Wall Street firms’ equity strategists see stocks posting gains for at least one more year, as earnings grind higher and the U.S. economy approaches its longest expansion since before the U.S. Civil War. Many strategists . . . noted that investors may become more worried about the risk of an economic recession as the year goes on, front-loading the gains for the year.
“Still, the median strategist sees the benchmark S&P 500 index climbing to 3,000 by December 2019, implying more than 15 percent upside from current levels. To be sure, strategists’ forecasts are getting further and further away, as the recent drop in stocks is making the targets appear more bullish than their outlooks suggest. The Dow has posted intraday swings of 250 points or more (about 1 percent) in 44 of the 54 days of the fourth quarter amid a spike in volatility that’s making it more difficult to forecast.”
— May resets vote on her Brexit deal. Bloomberg: "U.K. Prime Minister Theresa May has given herself another four weeks to save the Brexit deal she says is still the only way to avoid a chaotic split from the European Union. Last week, May called off a parliamentary vote scheduled for Dec. 11 on the withdrawal agreement after concluding it would be defeated amid overwhelming opposition from politicians across the House of Commons. She’s still hoping for more concessions from the EU, and on Monday announced that the deal will finally be put to a vote in the week of Jan. 14."
— Oil hits year-long low. Bloomberg's Alex Nussbaum: “OPEC has its work cut out to persuade the market that its output caps will stabilize oil prices — and U.S. producers aren’t helping matters. Crude settled below $50 a barrel in New York on Monday for the first time in more than a year... Oil prices are on track for a third straight monthly decline despite efforts by OPEC, Russia and other major exporters to halt the slide. Crude had slunk near $50 in recent weeks but always rebounded.”
— CEOs apologize for Trump. The Post's Jena McGregor: "Trump may have entered the White House with a background in business, but a new survey of business leaders shows little praise for the president from his fellow executives. A live survey released Monday and taken Thursday during a 'CEO Summit' hosted by the Yale School of Management’s Chief Executive Leadership Institute (CELI) found a majority of the attendees were critical of the president on his leadership of national security, his tactics with allies and his administration’s diplomatic communications...
"According to the survey results provided, roughly three-quarters of business leaders disagreed with a statement that Trump was effectively leading U.S. national security. Eighty-seven percent of attendees agreed that Trump’s negotiating style had cost the country the trust of allies, and 75 percent said they often had to apologize to international partners for 'embarrassing diplomatic messages' when traveling abroad for business."
And Americans are getting more worried about the economy. CNBC's Jacob Pramuk: “More Americans are predicting an economic downturn in the coming year, a shift that could affect [Trump] as he seeks re-election. Only 28 percent of Americans think the economy will get better in the next 12 months, according to an NBC News/Wall Street Journal poll released Sunday. Meanwhile, 33 percent expect it will get worse and 37 percent believe it will stay about the same, the survey found.
“Americans felt much better about the economy’s prospects at the beginning of the year. In a January poll, 35 percent of respondents said they thought the economy would get better, while only 20 percent believed it would get worse and 43 percent felt it would stay about the same. If voters sour on the economy, it would bode poorly for a president who has frequently pointed to it as a triumph. Trump, whose likely run for a second term in 2020 could be hamstrung by a poor approval rating, sees the economy as a central part of his appeal.”
— Xi faces internal dissent. WSJ's Chun Han Wong: "China’s Communist elite is marking the launch of the market reforms that fueled the country’s economic miracle with an unusual amount of discord, much of it directed at President Xi Jinping. In the weeks leading up to Tuesday’s 40th anniversary celebrations, Mr. Xi’s brand of forward-leaning foreign policy and strongman-led national development has drawn fire. Critics within the party are pointing to China’s flagging economy and down-spiraling relations with the U.S. as proof Mr. Xi has concentrated too much authority in his hands, made policy missteps and provoked pushback against China’s superpower ambitions abroad."
As the Chinese dump U.S. debt. "Chinese holdings of U.S. Treasurys are at their lowest levels in nearly a year and a half," per the WSJ's Mike Bird. "So far, the limited drawdown doesn’t indicate the same aggressive intervention seen in 2015 and 2016. But with these reserves playing such a pivotal role in the global economy, analysts and investors keep a close eye on changes for their knock-on effect on the currency.
— Huawei lawyers up. WSJ's Stu Woo: “Huawei Technologies Co., the target of a multipronged offensive by the U.S. government, is hoping for its day in court. The Chinese cellular-technology giant is relying on a team of recently hired American lawyers, who have filed legal ripostes to U.S. agencies, to defend itself from an onslaught of accusations and restrictions emanating from Washington...
“In response to the building offensive against it, the company in April cut back on an already meager effort to communicate with Congress and federal agencies. It laid off four people who worked in the U.S. on government and public relations . . . It hired two law firms, Jones Day and Morgan, Lewis and Bockius LLP, to focus instead on potential legal challenges to U.S. courts, the only government branch Huawei considers impartial.”
— American sportswear, via forced Chinese labor. AP's Dake Kang, Martha Mendoza and Yanan Wang: “Chinese men and women locked in a mass detention camp where authorities are 're-educating' ethnic minorities are sewing clothes that have been imported all year by a U.S. sportswear company. The camp, in Hotan, China, is one of a growing number of internment camps in the Xinjiang region, where by some estimates 1 million Muslims are detained, forced to give up their language and their religion and subject to political indoctrination. Now, the Chinese government is also forcing some detainees to work in manufacturing and food industries. Some of them are within the internment camps; others are privately-owned, state-subsidized factories where detainees are sent once they are released.
“The Associated Press has tracked recent, ongoing shipments from one such factory — Hetian Taida Apparel — inside an internment camp to Badger Sportswear, a leading supplier in Statesville, North Carolina. Badger’s clothes are sold on college campuses and to sports teams across the country, although there is no way to tell where any particular shirt made in Xinjiang ends up. The shipments show how difficult it is to stop products made with forced labor from getting into the global supply chain, even though such imports are illegal in the U.S. Badger CEO John Anton said Sunday that the company would halt shipments while it investigates.”
— Trump approves new farmer aid. Reuters: "Trump on Monday said he authorized a second round of payments from an aid package of up to $12 billion designed to help farmers stung by the U.S. trade war with China, billing it as a promise kept to a key constituency... An announcement on the second tranche had been expected in early December but was delayed by a tug of war on the issue between the USDA and the White House Office of Management and Budget, which questioned the need for the additional payments given growing expectations that China would resume buying U.S. agriculture products."
— Stacking cheddar. Heather Haddon at WSJ: “America’s cheese hoard continues to balloon to unprecedented levels, as producers fear the mountain could grow further and put even more dairy farmers out of business. About 1.4 billion pounds of American, cheddar and other kinds of cheese is socked away at cold-storage warehouses across the country, the biggest stockpile since federal record-keeping began a century ago.
“Driving the glut are cheese makers who ramped up production before trade tensions abroad tamped down demand for many of their products. Shifting tastes at home have further changed the outlook for traditional cheese makers. Many are paying to store their excess cheese in hopes demand and prices will improve . . . Cheese exports have suffered since Mexico and China, major dairy buyers, instituted retaliatory tariffs on U.S. cheese and whey.”
- "Michael Flynn’s business partner charged with illegally lobbying for Turkey." The Post's Rachel Weiner, Carol D. Leonnig and Matt Zapotosky.
“Russian disinformation teams targeted Robert S. Mueller III, says report prepared for Senate.” The Post’s Craig Timberg, Tony Romm and Elizabeth Dwoskin.
“Russian 2016 influence operation targeted African-Americans on social media.” NYT’s Scott Shane and Sheer Frankel.
- "How the various investigations into Trump’s world overlap." The Post's Philip Bumb.
- "These Democrats will soon have the power to investigate the White House. How far will they go?" Jason Zengerle at The New York Times Magazine.
- "More powerful than a Russian troll army: The National Enquirer." Jim Rutenberg at The New York Times.
— Goldman's crisis deepens. NYT's Matthew Goldstein and Alexandra Stevenson: "Since becoming a symbol of Wall Street greed during the financial crisis, Goldman Sachs has tried to recast its image as an investment bank that cares as much about ethics as it does its bottom line. Now, that makeover is being undone by the bank’s work for an obscure investment fund in Malaysia, which has entangled it in civil and criminal investigations around the world. Goldman recently received subpoenas from New York regulators, held talks with federal prosecutors and is likely to incur billions of dollars in penalties. It is one of the most serious crises in the bank’s 149-year history.
"The international legal assault on Goldman intensified on Monday, with prosecutors in Malaysia filing criminal charges against the bank, accusing it of defrauding investors by raising more than $6 billion for the fund, which was supposed to benefit the Malaysian public but ended up enriching Goldman and others. And that is just the start of the bank’s troubles. Lawyers for Goldman met this fall with federal prosecutors in what appeared to be an early step in settlement negotiations, according to three people familiar with those talks. Two of its senior employees have already been charged."
— Google's massive NYC expansion. WSJ's Douglas MacMillan: “Google announced a major real-estate expansion in New York City that will make the company one of the city’s largest commercial tenants and add thousands of jobs in coming years. . . . Google said it would lease a large office building at 550 Washington St. in Manhattan’s West Village neighborhood and make it the centerpiece of its new 1.7 million-square-foot Hudson Square Campus. Google plans to invest $1 billion in capital improvements to the campus . . .
“The internet giant plans to double its New York-based workforce to more than 14,000 employees over the next decade. The expansion puts Google’s ambitions for the city on par with tech rival Amazon.com Inc., which recently selected New York as one of two East Coast locations for major satellite offices expected to employ 25,000 new workers each by 2028. Unlike Amazon, which pitted cities against each other in a contest for favorable tax breaks and incentives, Google has favored a quieter approach to expansion, saying it hadn’t pursued incentives from New York.”
— Amazon sellers manipulate the site to boost their sales. WSJ's Jon Emont and Clément Bürge: “Amazon users may know the feeling, especially during the holiday shopping season: Overwhelmed by choices on an e-commerce platform with more than half a billion products, many people simply decide to buy one of the best-selling items appearing at the very top of the search results.
“No wonder those spots are coveted. In China and elsewhere, some Amazon sellers resort to cunning techniques to manipulate product listings, get one of those top spots, and boost their sales. There’s even a cohort of self-proclaimed experts, sometimes called “gurus,” who claim to have mastered the art of algorithm manipulation. They charge thousands of dollars for advice that they advertise as the key to immediate commercial success. Those shadowy tactics often breach Amazon’s rules. Aware of these violations, Amazon says it has zero tolerance for abuse of its systems and that it takes swift action against bad actors.”
— Women on track for pay equity, in 202 years. Bloomberg's Krystal Chia: "The good news: The global gender gap has improved, slightly. The reality: Differences in economic opportunity, including pay between men and women, are so vast it’ll take 202 years to fully bridge them, according to the World Economic Forum. The group looks at several measures of equality between men and women in this year’s Global Gender Gap Report, released Tuesday. Overall gender disparity across politics, work, health and education improved by less than 0.1 percent, meaning it’ll take 108 years to reach parity."
— GOPers struggle to convince Trump to avoid a shutdown. The Post's Seung Min Kim, Erica Werner and Josh Dawsey: "Congressional Republicans struggled Monday to find a way to persuade [Trump] to back off a public threat to shut down the government over border wall money, staying largely in the dark over the impasse that could halt pay for hundreds of thousands of federal workers by the end of the week.
"At the White House, Trump has remained disinclined to support even stopgap measures that would keep federal government operations running for a week or two, told by his closest advisers that he would have even less leverage when Democrats take control of the House next month. Trump is also bolstered by support of rank-and-file Border Patrol agents, whose union leader told the president in a recent Oval Office conversation that they would back a wall-induced shutdown if the dispute came to that point. All that has left Republican lawmakers eager to avoid a shutdown unsure whether Trump would ultimately come around to at least one option that would end the impasse before Friday."
- The Wilson Center hosts "U.S.-China 2018 Year in Review: A New Cold War?" in Washington on Tuesday.
- The Center for Strategic and International Studies hosts "Innovation, Partnership, and Self-Reliance: Health Policy Lessons from India’s Bihar State" in Washington on Wednesday.
- Brookings hosts "From Korea to the Congo: Nehru’s India and UN Peacekeeping (1945-1965)" in New Delhi on Wednesday.
- The Senate Committee on the Judiciary holds "hearings to examine a comparative look at competition law approaches to monopoly and abuse of dominance in the United States and European Union" in Washington on Wednesday.
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