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President Donald Trump has complained he doesn’t get enough credit for the stock market’s record highs, but experts say he should be careful what he wishes for: A desire to claim Wall Street’s recent highs could backfire if the market rally wanes or reverses.
"Stock Market at an all-time high. That doesn't just happen!" Trump tweeted on Thursday, after the Dow Jones hit the 22,000 mark for the first time ever, on Wednesday.
Trump set the precedent tying the stock market to the presidency back in 2012. On November 7, the day after Obama won a second term as president, Donald Trump tweeted, “The stock market and US dollar are both plunging today. Welcome to @BarackObama’s second term.”
But since that time, he expressed open skepticism about the veracity of stock values — figures that were much lower than the 22,000 he touted this week. In a February 2016 CNBC interview, he called the market a “bubble,” a claim he repeated later, claiming the market was only being propped up by the Fed’s low-interest rate policy.
Financial experts say that while corporate earnings, especially Apple’s strong quarter, were key to pushing the index over 22,000, the market is also expecting the Trump administration to deliver policies that benefit corporate America.
“The president has basically eliminated some of the regulations that were supposed to come into place that would’ve been onerous,” said Chris Chaney, vice president and financial adviser at Fort Pitt Capital Group. “We do think it is responding to a more business-friendly environment in Washington.”
Much of this optimism is forward-looking, based on legislative activities that haven’t happened yet. With much of the GOP’s agenda still up in the air, and the timeline for tax reform growing by the month, Trump and Congress ultimately will have to provide some grounds for that optimism.
“We’ve gotten several thousand Dow points injected into the market since Election Day. I think much of that reflects optimism that the administration and Congress will be successful in enacting policies that can help the economy,” said Mark Hamrick, senior economic analyst at Bankrate.com.
Trump benefited from inheriting a growing economy and a stabilizing of worldwide markets. “There’s been a general revival of stock markets around the globe,” said Lawrence White, a professor of economics at New York University’s Stern School of Business.
White said it’s unsurprising that Trump would try to take credit for the business conditions driving the market rally. “I would guess there’s very little downside risk because when the markets do turn down… politicians change the subject,” he said.
This strategy might not work if Trump faces a serious economic slump. “If the market goes in the tank for an extended period, that could be a more substantial issue,” White said.
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Economists say it certainly is possible that Trump will preside over a cyclical market downturn. Aaron Klein, a fellow at the Brookings Institution, pointed out that output and wage growth have both been uncharacteristically weak in the face of low unemployment rates. “The economy’s been putting together numbers that don’t quite add up for quite some time,” he told NBC News.
Since Trump has been taking ownership of the market’s rise, he would have a tougher time avoiding blame if economic conditions reverse.
“Stock markets are subject to wild swings up and down. If a president wants to take credit for the swing up, the question will come back to him on the swing down,” Klein said.