President Donald Trump is a master showman. In his prior life as real estate developer and reality TV star, you couldn’t go a day without seeing his name in the tabloids. But taking full credit for the creation of wealth in America – and the ability of the stock market to function smoothly – is a bit gone too far.
But the president – in a “Fox & Friends” interview conducted right after his former lawyer Michael Cohen implicated Trump in criminal campaign finance violations – felt a need to convince the American people how terrible a world without him calling the shots would be.
“If I ever got impeached, I think the market would crash. I think everybody would be very poor, because without this thinking,” Trump said, pointing to his own head, “you would see, you would see numbers that you wouldn’t believe in reverse.”
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Does this make sense? Not really, for a few reasons.
Finance 101: Stocks follow profits. In the long term, stock prices track quite nicely with corporate profits. They rise together, they fall together. This is Finance 101.
“With a very strong earnings season and corporate profits enjoying the fruits of a recovery that’s gained momentum over the past five years or so, this type of news is not directly affecting the reality of strong earnings,” says Steve Frazier, investment manager at Wakefield, Rhode Island-based Frazier Investment Management. “Real news of underlying fundamentals like borrowing costs, earnings growth, and GDP will continue to move markets as we’ve seen over this past economic cycle.”
Despite his self-promotion, Donald Trump lacks the ability to think additional corporate profits into existence.
To be clear, the stock market gyrates for other reasons, too, and the political division and uncertainty created by a Trump impeachment likely wouldn’t inspire a flurry of buying.
Still – would the economy screech to a halt without Trump in the White House?
Trump dumped? Thence, Pence. Trump’s comments reveal a low opinion of his handpicked vice president, Mike Pence. But you can be sure that the institutions and individuals controlling trillions of dollars in capital on Wall Street, however, would devote a touch more thought toward the vice president.
“I doubt an impeachment would move things much at all since Pence is unlikely to change anything that Trump did,” says Rob Baumann, chair of the economics department at College of the Holy Cross.
In fact, when considering the impact of a President Pence on the stock market, some think he’d be an outright bullish catalyst.
“His elevation to the Oval Office could lift a heavy burden from the stock market: CEOs’ expectations of lower profitability due to Trump’s trade war,” says Peter Cohan, lecturer of strategy at Babson College.
Cohan notes that after an impressive second-quarter earnings season in which the vast majority of public companies beat earnings per share expectations, management teams across America are tamping down expectations for next quarter.
“Seventy-four percent of companies tracked by FactSet lowered their guidance for third quarter EPS,” Cohan says. Many companies explicitly blamed tariffs and the resultant trade wars for the dreary outlooks.
“Were a President Pence to eliminate Trump’s tariffs and end his trade war, the burden they place on company earnings expectations would be lifted,” Cohan says. “And stocks would soar.”
Tax cuts, regulatory rollbacks have already happened. The two major catalysts for the stock market under Trump have been the 2017 tax cuts – which have no clause invalidating them if Trump goes down in flames – and a series of regulatory rollbacks.
In other words, from Wall Street’s perspective, there’s a sense in which Trump has already served his purpose. The low-hanging fruit is gone. There are no more easy levers to pull.
Trump views his potential impeachment as a tragic loss for America. But tax cuts and regulatory rollbacks don’t go away with Trump.
On the other hand, a number of things could go away with Trump: the trade war, escalating tensions with longtime allies, buddy-buddy relationships with Vladimir Putin and other dictators and daily Twitter rants that that rail against companies, political foes and other countries, both friend and foe..
Here’s the reality check. The Dow Jones industrial average has risen from 19,000 to 25,000 since Trump’s election despite his antics, not because of them.
The notion that Trump thought the Dow up over 6,000 points is patently ridiculous.
Wall Street would not crumble if the president of the United States failed to pump lead into his own Oxfords on a daily basis. Corporate America won’t self-destruct if the phrases “witch hunt” and “fake news” aren’t tossed around as liberally as championship confetti.
The menacing conclusion of Trump’s frail syllogism – that “everybody would be very poor” if he were impeached, due to the epic and preordained market plunge – is also hyperbolic, false and revealing.
Only 54 percent of Americans own stocks in any form, with the top decile of Americans owning 84 percent of all equities. A staggering percentage of baby boomers don’t think they’ll have enough money to retire comfortably.
As the heat really starts to turn up on Trump, the president is using one of his favorite tactics, fear, to persuade the American people that anything against Trump’s interests are against their own.
Hundreds of millions of Americans won’t be sent to the poorhouse by a stock market decline – they don’t own stocks to begin with. Yet even when Trump tries appealing to the people with a vain, cynical and self-serving argument, he reveals how out-of-touch he truly is with real people.