By Elena Popina and Sarah Ponczek
Donald Trumps got the stock market on a string, but investors are less sure of the game hes playing.
The Republican presidents renewed ramblings on trade dominated US equity markets this week, with a tweet-induced swoon on Friday leaving the S&P 500 Index 1.4 per cent lower than where it started on Monday. The gauge swung wildly, notching four moves of at least 1 per cent in the five days, and the Cboe Volatility Index spiked above 20, nearly double its level for the past year.
All of which has dented Trumps reputation as the stock market president.
“Its exhausting, its draining for a lot of people,” Henry Peabody, a Boston-based portfolio manager at Eaton Vance Management, said by phone. “The fashion by which its done is certainly unorthodox.”
Trumps rattled markets before with his tweets, with blasts on everything from the size of his nuclear button to the fate of Nafta raising investor anxiety. But those episodes passed quickly during his first year on the job, when a steady stream of pro-business policies smoothed any market dents.
Now, the White House is tackling areas where theres far less consensus support from Wall Street. For example, on Friday Treasury Secretary Steven Mnuchin acknowledged theres “a level of risk” that the tariff dispute between the US and China will erupt into a full-scale trade war — something investors clearly dont want.
“From the markets perspective, it was all a constant stream of lollipops,” Kevin Caron, a senior portfolio manager at Washington Crossing Advisors, said by phone. “Youre going to cut the taxes, youre going to have a pro-growth policy, the federal government is going to invest a little more — all of that is happy stuff. Nasty, contentious trade negotiations? Thats a more dissonant kind of message.”
The turmoil has damaged Trumps ranking when it comes to equity returns. The Dow Jones Industrial Averages 32 per cent rally during his first year gave him the third-best start by a president going back more than 100 years. But tack on the turmoil since January and he drops to the middle of the pack, behind former Presidents Barack Obama, Bill Clinton and George H.W. Bush.
Trumps impact on the market was on full display over the past five days. The week began with a 2.2 per cent tumble after Trump battered Amazon.com Inc. on Twitter, exacerbating a selloff in megacap tech shares. It didnt help that China put out a list of products it would target with retaliatory tariffs after the White House issued its own the night before.
A three-day rally of more than 3 per cent followed, as White House officials insisted the trade bluster was a negotiating tactic. But Trump upended that notion late Thursday, ordering a review of even harsher tariffs that sparked a bookend rout.
“Is the president adding a level of volatility with his tweets and with his statements?” said Joe Kinahan, the chief market strategist at TD Ameritrade. “Absolutely.”
Trumps tweets dominated markets this week to such an extent that a normally closely watched jobs report barely registered Friday. The data showed a slower-than-expected rise in hiring, but investors speculated it would do little to deter the Federal Reserve from its gradual pace of tightening.
Instead, the focus remained on the policy signals coming from the White House. Just as he did earlier in the week, head of the White House National Economic Council Larry Kudlow on Friday tried to tone down the harshness of Trumps latest trade statement. Judging by the markets plunge, hes losing his effectiveness.
“The problem for investors is that there isnt any consistency in the messages, we have no idea what to expect next,” said Ian Winer, co-head of equities at Wedbush Securities. “We are getting in an area we havent been in a long time. Portfolio managers have no idea whats going to happen over the weekend.”