AP NEWS

The stock market’s belated rude awakening

December 31, 2018

WASHINGTON — Donald Trump has always been erratic and impulsive. Why is Wall Street surprised now?

There isn’t any good explanation for President Trump’s abrupt announcement that he was withdrawing all U.S. troops from Syria. Conservative hawks are livid, of course, and House Minority Leader Nancy Pelosi, D-Calif., called the decision a Christmas gift to Russian President Vladimir Putin. But even those who favor withdrawal seem bemused. International relations analyst Stephen M. Walt cheered the troop withdrawal in a Foreign Policy article headlined: “Good Riddance to America’s Syria Policy: As usual, Donald Trump has done the right thing in the wrong way.”

Was the president trying to shore up his support with a base grown tired of foreign interventions? Did he cave when Turkish President Recep Tayyip Erdogan told him over the phone that he was going to carry his operations against the Kurds into Syrian territory? Was Trump’s decision a momentary whim now incredibly become indelible history? Who can say? Just in time for Christmas, Trump has finally brought us the peace that passeth all understanding.

Even by Trumpian standards, the troop-withdrawal announcement looked haphazard. And it wasn’t the Trump administration’s only holiday surprise. Treasury Secretary Steven Mnuchin announced (on Twitter, naturally) that the president had no intention of firing Federal Reserve Chair Jerome H. Powell. Which of course raised the possibility that he might. A day later, Mnuchin returned with a stunning encore: He said he had spoken with the heads of the United States’ six largest banks to confirm that they had “ample liquidity available for lending” and haven’t had “any clearance or margin issues ... the markets continue to function properly.”

Always nice to hear, of course, but because no one had suggested the markets weren’t functioning properly, the news was startling. Such announcements are traditionally made only on the eve of a crisis, not an otherwise dull Sunday afternoon.

Presumably, the president is displeased by the recent decline in financial markets. It’s less clear whether he, or anyone else, actually believed that investors would perk right up if the Treasury secretary, for no apparent reason, started shouting, “Guys, everything’s fine! We’re not going to have another financial crisis, okay?”

To be fair, it’s not clear what would cheer them up. Which brings us to the deepest mystery of all: Why were investors so optimistic in the first place?

I asked a number of financial professionals that question back when the bull market was still charging ahead. After all, Trump had promised tariffs, which large, publicly traded corporations tend not to like; he had promised immigration restrictions, which such companies really don’t like; and finally, he had promised lots of uncertainty, which those firms hate with the white-hot fire of a thousand suns.

The boom could be viewed as a collective sigh of relief that Democrats wouldn’t be finding new and creative ways to regulate the private sector. But given the protectionist drawbacks of a Trump administration, this didn’t really justify a 35 percent increase in the value of the S&P 500 from November 2016 to September 2018.

The best answer I got was that investors and chief executives assumed that Trump was planning to do the stuff they wanted — the tax cuts, the deregulation — and that the rest of his campaign promises were just base-pandering rhetoric that would be quickly abandoned. Their belief seemed touchingly naive, even quaint. But also sincere and strongly held.

Which may solve the twin mysteries of boom and the bust: Wall Street believed that Trump was just playing erratic and impulsive for the cameras, but that behind the policy scenes, what they’d be getting was a normal Republican presidency, only maybe a bit more so. The current correction may simply a reflect Wall Street’s belated realization that investors would be getting exactly what they’d seen on the stump: a man who substitutes reaction for planning and angry tweets for policy.

One thing, of course, is totally unsurprising: that when those on Wall Street finally figured out who they were really dealing with, and prices slumped, the guy from the campaign stump was going to find a way to make it all worse.

Megan McArdle is a syndicated columnist. She is on Twitter, @asymmetricinfo.

AP RADIO
Update hourly