The White House is pointing to the “fundamentals of the economy” as a reason not to worry about the downturn. It’s a fair argument, but the phrase has a checkered history in politics.
Calling “the fundamentals” of the economy “strong” has a checkered history in recent politics. Most famously, John McCain, the 2008 Republican presidential nominee, used the phrase on September 15, 2008, the same day the Wall Street giant Lehman Brothers filed for bankruptcy. Many political analysts consider it a turning point in the 2008 presidential campaign, which Barack Obama ultimately won.
The Stock Market Crash That Wasn’t
What goes up must come down.
JOHN STEELE GORDON / FEB. 6, 2018
The underlying economy has seen increased growth over the last three quarters, 200,000 new jobs last month, unemployment at 4.1 percent, and indications that wages might be rising at a faster pace after years of languishing. The new tax law should result in increased consumer spending and corporate investment, the two big engines of economic growth. Many economists see the possibility of 4 percent growth this quarter, a pace unseen for more than a decade.
And while interest rates have been rising, they have only been returning to more normal levels after the Fed kept them unnaturally low for years. That is actually a sign of a recovering economy. Higher interest rates will, however, increase the attraction of investments other than stocks, such as bonds. The extraordinary surge in the stock market from its March 2009, low of a little over 7,000 on the Dow–a run-up of almost 400 percent in nine years–is to some extent a product of those artificially low-interest rates that made the stock market the only game in town for investors.
So while the economy shows every sign of increasing health, I wouldn’t be surprised if we have seen the high on the Dow for the year. But that’s a long way from a crash. Overseas markets are down sharply, reacting to Wall Street, and Wall Street is likely to react to that reaction, at least at the opening. As Bette Davis famously said in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy night.”
That, of course, is precisely why President Trump should not have been touting the stock market rise as one of his administration’s accomplishments. The stock market, unlike the underlying economy, is subject to the whims of human passion in the short term.
Monday’s volatility looked set to continue Tuesday morning, as Dow Futures pointed to a loss of more than 600 points at the market open.
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