Over the past three years, President Trump has been repeatedly warned not to take too much credit for the rise in the stock market. If he claimed that he and his policies were the main reason for its gains, he would also have to ¨own¨ that same market if an unexpected plunge would bring the market down. His unmerited praise in the good times could easily be outweighed by undeserved criticism for bad conditions beyond his control.
The truth of the matter is that Trump inherited a strong economy from the Obama administration. For example, in the last 19 months of Obama’s administration, 3.9 million jobs were created in the U.S., whereas 3.6 million jobs were created in the first 19 months of Trump’s presidency. (In my next blog, I will analyze the tax cut, the national debt and other aspects of our economy, but here I want to concentrate on the Coronavirus and the stock market.)
The Dow Jones Industrial Average hit an all time high on Wednesday, February 19. It closed that afternoon at 29,348.03 Although there was an awareness of the negative economic effects of the Coronavirus, the White House and many economic pundits believed that the negative impact would largely be limited to China. Small drops in the Dow Jones were expected to occur and that is precisely what happened last week. Nevertheless, the harsh economic reality hit with a vengeance on Monday, February 24, when the Dow Jones Industrial Average dropped more than a thousand points to a close at 27,960.80 (a decline of more than 3%).
It was widely predicted that the Dow Jones would rebound on Tuesday. That turn around did not materialize and the market continued to fall another 880 points.
The Dow Jones index dropped another 125 points on Wednesday which prompted President Trump to present a special televised message to the nation later that evening. His message was to show to a concerned citizenry and a jittery market that the administration was in control of the Coronavirus situation. In response to the criticism that the administration´s response was in shambles, Trump appointed Vice President Pence to be the ¨Czar¨ of the situation. Trump´s message was not his best. He rambled, repeated himself, and made misleading comments about the Coronavirus being similar to the flu. He claimed that it was not inevitable that the virus would extend widely throughout the U.S., thus contradicting what his own CDC (Centers for Disease Control and Prevention) had announced that it was not a question of IF the Coronavirus would spread in the United States, but WHEN it would do so.
Far from calming his public, the Dow Jones dropped another 1190 points on Thursday to close at 25,766.64. This was the largest one-day point drop in the history of the Dow Jones. In a strange twist on the fable about the boy who cried wolf, President Trump has a credibility problem with half of the American public. The more he affirms, ¨Everything is great¨, ¨we have it under control¨, and ¨we are totally prepared¨, the less our citizens believe him. I don’t believe him. More importantly, investors don´t believe him.
On Friday, the nose dive of the Dow Jones continued. It dropped another 357 points to close at 25,409.36. It was the worst one week decline since the economic crisis of 2008. From its high on February 19, it has fallen 15%. Most economic and political pundits believe (hope?) that the bottom has been reached and that the value of the stocks will soon rise again. Nevertheless, here is what we need to keep in mind if we want to move forward:
- We must not minimize the personal tragedy. Almost three thousand people have already died from the virus and over 82,000 have been infected worldwide.
- Vice President Mike Pence, the new ¨Czar¨ charged with heading the fight against the virus, needs to surround himself with credible medical health experts. When Pence was governor of Indiana, he made several troublesome medical health comments like ¨Cigarettes do not cause cancer¨.
- President Trump must be more honest and transparent with the American public. He has muzzled government scientists and health officials to get clearance with Pence´s office before they communicate with the media. This censorship does not inspire confidence.
- The coronavirus is not the sole reason for the Dow Jones fall. Most stock market experts agree that the market was overvalued and was in need of a ¨correction¨. Before the virus hit, many countries around the world were sliding into a recession. That is now more likely. The trade war with China had already weakened the economies of that country and the U.S. The relationship between our economic growth and our huge national debt is at a very dangerous level. As a country, our expenses are much higher than our income. We are paying for our lavish lifestyle by borrowing from future generations.
- The economy has a huge political impact. Remember Clinton’s political slogan, “It’s the economy, stupid.” Trump’s political fortunes will rise or fall on how his administration handles this crisis. For better or for worse, Trump “owns” this economy.