President Trump seems to have another obsession: The stock market. He mentions it almost daily now, touting how the Dow Jones industrial average — a popular U.S. stock market indicator — is up 25 percent since Election Day.
It's almost as if, in Trump’s mind, the stock market is his report card. At a time when the polls give him about a 40 percent approval rating, he seems to view the market as giving him a standing ovation.
“It would be really nice if the Fake News Media would report the virtually unprecedented stock market growth since the election,” Trump tweeted Wednesday. It's a much different tone than a year ago, when Trump warned America to beware of a “big fat bubble” in stocks.
Trump's right that the Dow has soared about 25 percent since the election. It’s a big increase, but it isn’t “unprecedented.” Bloomberg ran the numbers comparing Trump's market bump to that of past presidents. The result? Trump isn’t the best; he’s the seventh best.
But there's a much deeper issue than that: By constantly citing the stock market, Trump risks confusing Wall Street with Main Street. When wealthy investors profit, it doesn't mean average folks do, too.
Only about half of America has any money at all in the stock market (52 percent of Americans, according to the latest data from the Federal Reserve, which does a comprehensive survey of everyone who has money in brokerage accounts, mutual funds, 401(k) plans, pensions, etc.).
Most people with incomes below about $50,000 don’t have money in stocks. They benefit little, if at all, from the market surge.
“When Trump’s base sees him be a cheerleader for Wall Street, it’s a negative for Trump,” argues Greg Valliere, chief global strategist at Horizon Investments, who writes a daily political note. “His base in Youngstown, Ohio, or Bethlehem, Pennsylvania — they don’t feel the stock market is their friend.”
Getting the stock market up has proven to be far easier in recent years than increasing wages. Just ask former president Barack Obama. The Dow surged almost 150 percent during Obama's tenure. Wage growth, meanwhile, hovered around a disappointing 2 percent a year.
The other risk for Trump is that, after years of climbing, the market could fall unexpectedly. A large decline in the stock market is hard to dismiss as “fake news.”
“We think equity valuations are pretty full now,” says Andreas Utermann, chief executive of Allianz Global Investors. Many wealthy investors are taking some of their money out of the markets and keeping it in cash, in anticipation of a downturn ahead, he notes.
It’s almost impossible to predict when markets will fall, of course. But Trump’s intense focus on the market could easily backfire if there is a sell-off. Or it could lead him to make choices to try to prop up Wall Street, a slippery slope.
“By obsessing over the markets, he could create an impression that the markets have an undue influence on his policies,” says Valliere. “It colors his thinking on everything.”
Trump has many big decisions coming that could affect the market. The signature part of “Trumponomics” is tax reform. Trump and Republicans in Congress have to decide if an ambitious package of tax cuts being negotiated on Capitol Hill should help corporations and the wealthy (the same people benefiting from the current stock market run) or help the middle class and working poor (the people who have little to no money in the market and are generally skeptical about Wall Street, especially after the 2008 financial crisis).
The stock market may go up more if big businesses get tax breaks, but that isn't necessarily a boon for Main Street.
The president's other looming choice is whom to appoint the next head of the Federal Reserve, America's central bank, which plays a huge role in steering the economy. According to press reports, there are many diverse candidates, including current Fed chair Janet L. Yellen, current Fed governor Jerome “Jay” Powell, National Economic Council chief Gary Cohn and more traditional Republican economists Kevin Warsh and John Taylor.
All are well respected, but Wall Street might feel more comfortable with some than others.
“The markets like continuing and familiarity. That would be a vote for Janet Yellen first and Jay Powell second,” says Seth Carpenter, chief economist at UBS. Yellen and Powell are currently at the Fed and have helped shape the policies in recent years that have boosted the stock market to record highs.
Any change to the current policy would be a “sharp and substantial disruption” to markets, Carpenter says. It's not clear any of the candidates would want to dive in and start making major changes, but Warsh and Taylor have been the most critical of some current Fed moves. They are seen as likely to raise interest rates faster than Yellen or Powell, a move that could spook markets.
There's been a lot of talk about which candidate is closest to Trump or which one would be likely to scale back bank regulations the most. But if Trump’s overarching concern is the markets, Yellen or Powell may be likely to move to the top of the list.
“Frankly, from Trump’s own economic personal interests, Janet Yellen would be a good choice. She’s done a good job of steering the economy, which is good for him,” says Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and former economist at the Fed.
For Trump, it seems that the market is only becoming more important as the first year of presidency continues. On Wednesday night, in a highly unusual statement, he told Fox News interviewer Sean Hannity that the stock market rise is helping bring down the nation’s $20 trillion debt. In reality, the debt is rising, and there's little connection between the stock market and government debt.
“We’re very, very happy with what’s happening on Wall Street,” Trump told Hannity.
Two questions remain: How far will he going to ensure the bull market keeps going? And will Main Street like the result?