Stock Markets

Don’t Blame it All on Trump

Donald Trump, Haider al-Abadi
Even if he's president, he's still just one man. Source: AP

Wall Street has slowed down. The DAX has fallen below 12,000 points. And you don’t have to look for the guilty party. Dwindling confidence in Donald Trump’s ability to get things done has put investors in a bad mood. They fear the Trump rally is over, and sobriety is the order of the day. Really?

Such a simple explanation might be tempting, but stock markets don’t rise or fall just because of Mr. Trump.

The U.S. president took office in January, and promptly failed to get his bill to prevent immigration from seven Islamic countries past the American judicial system. Then the FBI discovered a growing number of links between Mr. Trump’s election campaign team and the Russian secret services. That in itself could ultimately result in impeachment proceedings. And now Mr. Trump has failed to deliver on one of his biggest promises – to revoke Barack Obama’s health reform as quickly as possible.

Above all, the financial markets and sections of the public critical of Mr. Trump have the nagging suspicion that the U.S. president just can’t get the job done.

Someone so politically inexperienced he can’t even manage to abolish a state health care system hated by the rank and file of his own Republican Party is unlikely to succeed with other, bigger reforms – like his election promise of investments to the tune of $1 trillion in America’s dilapidated infrastructure.

Is this man really capable of implementing an economic program everyone can benefit from – from America’s construction machinery giants like Caterpillar and conglomerates like General Electric, Germany’s highly globalized industrial companies like Siemens, BASF, Evonik and Heidelbergcement?

Even the lower taxes promised to companies and consumers – surely, core Republican issues – can no longer be taken for granted.

Stock prices rose before and after Mr. Trump’s election because shares are still a very fitting form of investment as long as there is so little return on bonds and savings in America, and none at all in Europe.

There is no doubt the president has failed to delivered – so far, at least. But it would be wrong to conclude that’s why stock markets fell. That would imply investors had been totally blue-eyed until now, and so greedy for further gains that they were willing to believe every word that came out of the president’s mouth. That might be true of a few investors, but not hundreds of thousands of them.

Perhaps things are much more straightforward and less political: Stock prices rose before and after Mr. Trump’s election because shares are still a very fitting form of investment as long as there is so little return on bonds and savings in America, and none at all in Europe. And most American and European companies earned well in 2016 – more than in the previous year.

What’s more, almost without exception, they are optimistic about the future, mainly because the global economy is clearly growing more strongly than it has in the last five years. With their strong exports, many German companies in particular stand to profit from this. The Ifo-Index shows that 7,000 companies in Germany estimate their situation and prospects to have improved each month this year. Indeed, they now consider their situation better than at any time in nearly six years. The Ifo-Index just reached its highest level since 2011 – and that’s what drove the DAX up to the 12,000 mark.

The most probable explanation is that without Mr. Trump and the uncertainty his volatility unleashed on world politics and the financial markets, the DAX would probably have climbed still higher.

The stock markets falling by a few percentage points is not unusual. Investors are cashing in after an eight-year bull market. This phase could last for the next few weeks, or even months, without a fundamental change in trend towards a bear market. Only if the economic climate were to weaken, or even nosedive would that be a threat; if companies earned less or other forms of investment became more attractive – whether due to Mr. Trump, rising interest rates, or some other event.

Anyone who thinks Donald Trump alone is responsible for the long phase of steady gains and the current losses is overestimating the pugnacious president and his importance to the financial markets. It takes more than election campaign rhetoric and government policy via Twitter to make stock prices to rise and subsequently fall.

To contact the author: sommer@handelsblatt.com 

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