Perfect storm sends Dow plummeting

CNN's Clare Sebastian says a perfect storm of factors sent the Dow plummeting 1100 points, but cautioned that a market correction was long overdue following an unprecedented period of growth.

Posted: Feb 6, 2018 4:43 PM
Updated: Feb 6, 2018 4:44 PM

For a connoisseur of cable news like Donald Trump, it was not a pretty picture.

As the President touted his economic agenda in Ohio on Monday, his face stared out of millions of television screens next to blaring red graphics and yellow numbers whirling like the reels on a slot machine, telling the story of a full-bore stock market plunge.

For any president, the split screen moment showing an apparent disconnect between his message of a roaring economy and hemorrhaging equities would be a little embarrassing.

But for Trump, who has constantly boasted about almost daily record highs on Wall Street since his election and told Americans that he alone is responsible for their healthy 401(k) balances, the mismatch was even more pronounced.

Even the President's favorite news source, Fox News, was the bearer of bad tidings for Trump, with a banner reading "DOW, S&P turn negative for the year."

One White House aide told CNN's Jeff Zeleny that it was jarring to see Fox ditch the President's speech when the market free-fall hit 1,000 points.

As Trump slammed Democrats in Blue Ash, Ohio, and celebrated robust job creation along with rising wages, the Dow Jones Industrial Average tanked 1,600 points at one point, before recovering on a volatile day to a record loss of a 1,175 point tumble, or 4.6%.

The Dow was already coming off its worst week in two years, taking the 401(k) retirement plans of millions of Americans down with it, after an era when most small scale investors have only known constantly rising balances.

Touted 84 Dow records

One irony of Monday afternoon was the fact that the President was trapped in his own story as the market slumped, oblivious to what was happening and powerless to shape the moment with his shrewd reality show star's eye, as he often does.

As the market tanked, Trump was hitting Democrats for not applauding during his State of the Union speech last week, even suggesting it was "treasonous."

"They were like death and un-American. Un-American. Somebody said, 'Treasonous.' I mean, Yeah, I guess, why not," the President said.

The speech, the first hints of his midterm election message and coming during the stock market slump, was a reminder of the way that the economy, so central to the Republican fate after the huge tax cut bill, is a fickle base on which to build a re-election message, especially at a moment that could turn out to be the end of the economic recovery cycle after the Great Recession.

Trump's past boasts about a Trump bump in stocks may come back to haunt him.

In December, at a firehouse in Florida, Trump took personal credit for the bull run, as if he had repeatedly steered the Dow through a year of smashed record highs.

"We broke it 84 times this year. The stock market hit a new high 84 times since we won the election on November 8 of last year, so that's something we can all be proud of," Trump said, before boasting at the impact on 401(k)s.

"That makes you all look very smart and your families say, 'Boy, are you a great investor,' right, when you have your numbers go up and your stocks go up and everything else," he said.

At the World Economic Forum in Davos last month, Trump gloated about booming stock markets and argued that if Hillary Clinton had won the election, then the market would have lost half of its value.

"I believe the stock market from that level, the initial level, would have been down close to 50 percent," he said.

On Monday, faced with a tricky political conundrum, the White House argued that the losses of the day were dwarfed by the expansion in stock values on Trump's watch.

"It's overall in a very strong place and its exorbitantly higher than it was when he took office," White House Deputy Press Secretary Hogan Gidley told CNN's Anderson Cooper.

"Even when there is one day of fluctuation, it is still in a really good place," Gidley said, adding that the overall economy remained very strong.

Reasons for White House to be nervous

Trump supporters also point out that the market sell-off may be a function of the improving economy, since investors are nervous that rising wages could spark inflation and a decision by the Federal Reserve to raise interest rates.

Still, there are reasons to be nervous. Though Trump's approval ratings have improved, to the low 40% range in some recent polls, he remains in a position that historically has been perilous for presidents in midterm polls.

It's always possible stocks could go back on a tear in the weeks to come. And if there is a correction in the market, it may benefit Trump and the Republicans for it to happen now and not closer to November.

But if interest rates do spike and impact consumer confidence in a way that leads to a slowing economy, there could be a significant political impact at a time when Republicans are trying to cling onto the House and the Senate.

And since markets usually price good news in, much of the impact of the GOP's tax reform bill was probably included in the giddy highs in the market late last year -- meaning that the political benefit of the tax reform law, on stock prices at least, may come too early to affect the midterms.

Ironically though, one of the contradictions of Trump's cheerleading about stocks could help him now. Since stocks tend to attract the wealthiest of Americans, highlighting rampaging stock values always seemed an odd way for him to connect to the "forgotten men and women," who helped put him in the White House.

Now, the White House might benefit from the limited exposure of Trump supporters to wildly swinging stock market values.

But considering Trump's personal political liabilities, and his decision not to reach out to many voters outside his Republican base, GOP hopes in November are still even more closely tied to the economy than in any other year.

That means that the GOP is going to experience plenty of nervous moments in the months to come, since political fortunes linked directly to a volatile economy can go up as well as down.

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