President Trump learned a dangerous trick during his trade war with China: A few choice words can reassure financial markets and send stocks soaring.
Trump has tried to do the same thing amid the coronavirus outbreak, with disastrous results. First, Trump tried to downplay the crisis as cases mounted and businesses began canceling events. His top economic adviser, Larry Kudlow, even suggested people should buy stocks, as the virus was metastasizing. You’d be down nearly 20% in a mere three weeks if you took that terrible advice.
Trump tried to get serious on March 11, when he gave a prime-time TV address announcing a confusing ban on travel from Europe. The convoluted plan renewed an abrupt selloff in stocks, putting a stake in the bull market that began all the way back in 2009. The latest selloff began while Trump was still speaking, indicating a direct connection between Trump’s words and investor panic.
The S&P 500 index is now down around 25% from its peak on Feb. 19. The last bear market—a decline of 20% or more—began when George W. Bush was president, in 2007. It’s obviously a bitter irony for Trump, who has boasted many times of the stock market’s performance during his presidency. Losses during the last three weeks have completely wiped out gains of the prior 14 months.
Trump doesn’t deserve blame for the virus. But he deserves all the blame for a halting U.S. reaction to it and the loss of confidence markets now reflect. Trump has minimized the impact of the virus, blamed the media and failed to explain why the government is so slow to ramp up testing. “Trump’s address to the nation was symptomatic of the lack of policy coordination,” Oxford Economics wrote in a note to clients. “Markets reacted negatively to what was perceived as a solemn but confused speech that... lacked in concrete fiscal and health measures to address economic and financial impact of the virus.”
Trump’s Europe travel ban was an immediate fiasco, promptly condemned by European leaders. Thousands of Americans in Europe panicked to get home before they got locked out. And Trump didn’t explain why he exempted Ireland and the U.K., leading to speculation that those two countries got special treatment because Trump owns golf courses there. Instead of a coherent travel policy coordinated among nations, Trump delivered a rash, standalone move that caught everybody off-guard.
Trump is undoubtedly wondering what he can do or say to get markets moving the other way. Washington will probably pass some sort of stimulus package, though that could take weeks and address virus concerns only indirectly. The most important thing Washington can do right now is dramatically improve the availability of test kits, helping local health officials figure out who has the virus and who doesn’t. But Trump hasn’t mentioned that.
The economic and social consequences of the coronavirus could end Trump’s presidency. The average bear market lasts 21 months, according to S&P Dow Jones Indices. That would place the end of this bear market in October 2021 and force Trump to run for reelection while voters are watching their retirement plans shrink.
It’s possible stocks could recover sooner. Sam Stovall of CFRA Research points out that the Trump bear market is the swiftest ever, with only 22 days elapsing between the Feb. 19 peak and the 20%+ loss in the S&P 500 by March 12. And rapid-onset bear markets don’t last as long as ones that take longer to unfold. They’re shallower, too, with an average loss of 26%, compared with a 33% drop for all bear markets. By that measure, we could already be close to the bottom.
But Trump will have to beat the virus before markets recover, and it shows no signs of bending to his will the way China did in the so-called “phase one” trade deal from January. Public health experts warn the coronavirus caseload will get worse before it gets better. The election arrives in less than eight months. No doubt Trump is plotting both on the calendar.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: [email protected]. Encrypted communication available. Click here to get Rick’s stories by email.
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