Joined at the Hip: Trump and the DJIA
‘Sell in May and go away’ is the old saying. This year, on the day before the 4th, May 1st was 500 Dow points ago, all the while, Washington D.C. looks for obstruction of justice. The crowd, the crowd that is Wall Street, seems to be sticking around this summer.
Robert Prechter writes in The Socionomic Theory of Finance, “there is abundant evidence that herding behavior exists among stock market participants. Myriad measures of market optimism and pessimism show that in the aggregate, such sentiments among both the public and financial professionals wax and wane concurrently with the trend with level of the market.”
Andy Kessler, writing for the weekend Wall Street Journal, wonders, rhetorically I suspect, “Are there any bells ringing now?” He continues,
How about a few months back when someone looked me in the eye and insisted—without cracking a smile—that Uber was a bargain at a $68 billion valuation? Or when, with shades of AOL and Time Warner , Amazon bought Whole Foods for $13 billion—and then its stock went up by more than that amount? Or when Tesla missed its numbers again and the stock rose anyway? Or when the price of a bitcoin, backed by nothing but the faith of devotees, hit $3,000, tripling over a year? Or when Hertz stock rose 14% on news of a deal with Apple for a self-driving car that is still vaporware?
In the Sunday New York Times, Jeff Sommer also sounded a discouraging word, pointing to the flattening of the yield curve. “The bond market is flashing warning signals that bad times may be ahead for the stock market and the economy.”
Sommer guesses, “In the past, when disputes between the Fed and the bond market have persisted and grown, they have sometimes predicted big problems ahead — like a plunging stock market and, eventually, a recession.”
But, as Prechter points out, the markets are an indicator of social mood and no matter the nutty valuations or how irrational the exuberance, society’s positive mood will keep pushing the market higher, until the collective mood changes.
And when the mood changes the President’s fortunes will change with the market’s. Elliottwave.com quotes its sister publication The Socionomist from 2013, “Politicians steer their careers only partially. Often, a more important driver is social mood. Changes in social mood can propel public figures from acclaim to ignominy, and vice-versa, from abhorrence to adoration.”
The House of Representatives recommended 11 articles against President Andrew Johnson in 1868, but as a bull market raged, “The Senate took three separate votes, and each fell one vote short of the two-thirds majority necessary to remove Johnson from office” and Johnson was acquitted.
More recently, everyone learned Monica Lewinsky’s name and the color of her dress as the stock market corrected and the House impeached Bill Clinton. “Yet, as the Dow recovered, so did Clinton's approval ratings. And despite a $70-million prosecution of Clinton's related perjury and obstruction of justice charges, the Senate acquitted the president-- as the stock market, and therefore social mood, broke out to a historic positive extreme,” relates the July 2013 issue of The Socionomist.
The Watergate break in occurred in the midst of a 67 percent DJIA rally and despite the scandal, Nixon, with the help of Fed Chair Arthur Burns, won re-election in a landslide. However, the public’s mood then changed, and Nixon’s fortunes with it. “The investigation accelerated. With almost certain impeachment looming, Nixon became the first president to resign from office on August 9, 1974.”
So, is Trump the new Nixon? Watergate expert Rick Perlstein says, “the comparisons at this point obscure more than they reveal. Nixon was just so shrewd, so strategic: it’s simply inconceivable he would get caught with his pants down implicating himself on the record, like Trump now does almost daily.”
If Nixon was shrewd, Trump is just The Dude in comparison.
The New York Times' Maureen Dowd writes, “”it often feels like we have a Page Six reporter as our president.”
The 71-year-old president’s pathological inability to let go of slights; his strongman reflex to be the aggressor and bite back like a cornered animal, without regard for societal norms; his lack of self-awareness about the power he commands and the proportionality of his responses; his grotesque hunger for flattery and taste for Tony Soprano tactics;
Fake news, fake president, fake stock market, but for now, the public mood is “don’t worry, be happy,” so all is well for stock investors and Trump. But, for how long?