The Dow Jones industrial average clocked its worst one-day performance since October on Monday, following that performance up with another triple-digit loss on Tuesday. The three major indices are all off about 1 percent to begin the week, and the CBOE Volatility Index — proverbially known as the “fear gauge” — posted its biggest gain (12 percent) in five months on Monday, then rose another 1 percent Tuesday.
President Donald Trump — the man who took credit for the post-election market rally and the first-ever crossing of the Dow 20,000 benchmark — is partly to blame for the recent weakness, according to some market analysts and investment managers.
Tech is up in arms. “Trump’s commentary on immigration and the travel ban, and some of the backlash that he’s getting — especially from the tech executives — I don’t think is helping the market,” says Lindsey Bell, investment strategist at CFRA Research.
[See: 7 Companies That People Are Boycotting Because of the Trump Family.]
It wasn’t just commentary from Trump that riled Silicon Valley execs, it was an executive action, issued suddenly on Friday that banned citizens of seven countries with majority Muslim populations from entering the U.S. for 90 days. It also restricts refugees from those countries from coming to the U.S. for 120 days, in a move allegedly designed to “protect the citizens of the United States.”
The move was almost immediately criticized by a veritable who’s-who of American technology companies, many of whom were founded by first- or second-generation immigrants. Some of Silicon Valley’s most talented employees come from overseas as well.
Amazon.com (ticker: AMZN), Microsoft Corp. ( MSFT) and Expedia ( EXPE) have gotten behind a legal challenge to the executive action, and Facebook ( FB), Alphabet ( GOOG, GOOGL), Netflix ( NFLX), Box ( BOX) and many others have all strongly condemned the order.
The controversial travel ban deals a major blow to Trump’s efforts to play nice with the technology sector, while also inhibiting tech’s ability to grow and hire the best talent from around the world.
Peter Thiel, Trump’s billionaire ambassador to the tech world, certainly has his work cut out for him.
Executive order backlash. But that’s not the only thing The Donald has done in his short time as president to make Wall Street investors jittery. His first week-plus in office has been a flurry of rushed executive orders and press conferences, and has signaled a number of huge policy changes with unknown consequences.
Trump signed an executive action announcing his intention to essentially undo Obamacare (without a plan to replace it), declared that construction on the wall on the Mexican border will begin in a matter of months, and that Mexico would pay for said wall. When Mexico flatly refused, Trump floated the idea of a 20 percent tax on Mexican imports, a policy viewed by many economists and fiduciaries as extreme, untenable, and devastating to many of the same blue-collar Americans that voted for Trump.
“Long-term I do believe it would have a negative impact on our economy,” says Paul Pagnato, CEO and founder of PagnatoKarp, an independent wealth specialist firm based in Reston, Virginia, with $3 billion in assets under advisement.
Pagnato notes that a 20 percent tariff would likely lead to a corresponding rise in consumables from our neighbor to the south. “A lot of those goods are sold to companies like Wal-Mart ( WMT) that are middle-market,” Pagnato says.
From agricultural products and electronics to auto parts and beer, imports from Mexico, a top-four U.S. trading partner, are utilized every day by millions of Americans. If the U.S. followed through on Trump’s tariff threat, “the people affected wouldn’t be wealthy. The people affected would be average, middle-class Americans,” Pagnato says.
Exorbitant tariffs could also put the U.S. at risk of trade war in which foreign countries raise tariffs on American exports, killing American jobs.
Higher prices and fewer jobs is not a formula for a thriving economy.
Bill Northey, CIO at the Private Client Group in Helena, Montana, puts it simply: “The recent news from Washington has included more controversial and unexpected actions, which has increased uncertainty.”
[See: How 8 CEOs Reacted to Donald Trump’s Immigrant Ban.]
And, as investors can plainly see, markets loathe uncertainty.
What Trump hasn’t done is also a concern. “Many of the factors which had driven the post-election rally — optimism about tax cuts, infrastructure spending and roll back of regulations — have yet to come to fruition,” Northey says.
With Trump’s first days spent busily dealing with issues like health care and immigration, Trump — who marketed himself as an unapologetically pro-business candidate — has yet to really address the issues that got Wall Street excited enough to elicit the “Trump Bump” in the first place.
“The run-up was primarily due to infrastructure spending and tax reform, so the fact that hasn’t come up yet doesn’t help the situation,” Bell says.
It’s not all politics moving markets. While Trump’s recent actions aren’t helping sentiment amongst investors and traders, they’ll never be the only thing causing Wall Street gyrations.
“Stocks were up over 7 percent since Nov. 8 going into this pullback and it was over 70 days that we hadn’t seen a 1 percent decline in the market,” Bedll says. “We’re also entering February, which is the second worst-performing month of the year historically.”
Bell brought up specific companies like Under Armour ( UA, UAA) and UPS ( UPS), each of which disappointed shareholders with weak results or guidance, or both. Both classes of Under Armour stock — UA and UAA — plunged, falling 25 percent. UPS shares lost nearly 7 percent.
“We have to remember that we are in the heat of earnings season, and today the numbers that came out weren’t all that spectacular for the fourth quarter,” Bell said of Tuesday morning’s corporate results.
With a historically softer time of year coming up, a bad start to fourth-quarter earnings and a negative reaction to his most recent policies, Trump may soon need to confront the inconvenient truth of a market pullback: mainly the fact that it exists and he played a role in it.
But if the market continues to retreat, will President Trump be as quick to claim responsibility for it as he was with Dow 20k?
[See: 7 of the Best Stocks to Buy for 2017.]
Only time will tell.
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White House Policies Ignite the Market’s Trump Slump originally appeared on usnews.com
