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HORIST: What is driving down stocks?

HORIST: What is driving down stocks?
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It may be a bit of an oversimplification, but not by much.  The stock market runs on the future anticipation of profits across a broad range of companies and industries.  That is why the record bull market began immediately after President Trump was elected.  It was on the ANTICIPATION of tax relief and deregulation that the market moved.

The historic slow recovery of the Obama administrations – and the strong indications of a slowing down of even that slow recovery in Obama’s last months in office  – was based on policies that retarded business growth, job creation and wage increases.

Political policies do impact on the stock market, but not always as the politicians might like or ever claim.  You can recall the almost universal campaign claims that a Trump election would crash the market.  Those were not intelligent economic assessments, but merely campaign fear mongering in an effort to scare votes away from Trump.  As such, those predictions were woefully wrong.

So, what has driven down the market?

In the Democrat version, it has been the dubious claims of chaos and disruption as a result of the Trump presidency.  This is again a political claim that has very little validity in the real world.  It is true that markets tend to like clarity, consistency and predictability.  Who doesn’t?  But what markets love even more than those conditions is profit – pure and simple.  At this juncture, profits are looking pretty good.

Where presidential policy can be said to have a negative impact – a cut into profits – are the tariffs.  This fear is mitigated to some extent by the understanding that Trump is basically a free-trader and is surgically using temporary tariffs to roll back what every knowledgeable person understands to be trade practices detrimental to the United State – including tariffs imposed by other nations, cyber theft of business research and development and lack of protection of American intellectual property – and these problems go well beyond just China.

Because the recognized purpose of the tariffs was to eliminate much of them – and protect the technological developments of American corporations — the tariff talk, and even the initial imposition of tariffs, did not impact significantly on the market.

As is always the case, there have been a number of factors that can explain the downward turn.

There is the long-range analysis that shows a historic 10-year trend into recessions.  We are at that point today.  There are a lot of theories why that seems to be the case, but even then, there must be underlying factors that impact on profits.

The strongest correlation between policy action and drops in stock prices is interest rate increases by the Federal Reserve Bank – and even anticipation of increases in the near future.  While the Obama recovery was weak and feeble, had the Fed, as they call it, increased interest rates, the economy would likely have fallen back into serious recession.  Everyone understood that interest rates would eventually have to be raised to fend-off inflation – and that any such increase would drive down stock prices.

That is why Trump is jaw-boning the Fed in an effort to have them further delay interest rate increases.  However, he has no power to stop them.  The Fed – for better or worse – was created as an independent quasi-governmental agency beyond the authority of a President.  Presidents nominate the heads of the Fed, but they cannot summarily remove them.

Another factor that is contributing to the slide is the record rise in the past two years.  There is a time when investors – speaking of the big funds and major players – do a little of what is called “profit taking.”  Any smart casino gambler – and buying stocks is a gamble – will scoop up the wins and walk from the table in the wise belief that you cannot continue to win consistently.  This was a market ready for a little profit taking.

Another factor shows that even good news can have untoward consequences.  In economic terms, the 3.7 percent unemployment rate – which economists see as full employment – means that workers will be harder to find – and more expensive, meaning wage increases.  That cuts into profits – the gold standard of Wall Street.

Democrats and the left-wing media – including the highly politically biased economic analysts – avoid one of the more significant factors driving prices down.  If they mention it at all, they claim it is not a factor because it does not comport with a pervasive anti-Trump/pro-Democrat reporting narrative.  It is the control of the United States House of Representatives by the Democrats – and the increased inability of Washington to continue to produce pro-business (profit-increasing) policies.

There has been a very close correlation between the political polls and the stock market.  As the probability of a Democrat takeover in the House increased, stocks declined.  The decline accelerated on the ANTICIPATION of Republicans losing control of the House became more obvious.  The precipitous drop further accelerated immediately following the election in which they took a clear majority in the House and set Nancy Pelosi on track to become Speaker again.

This, combined with Democrats retaining the ability to block legislation and mount filibusters in the Senate, renders the congressional GOP in such a weak position that it will be virtually impossible for them to advance any significant conservative pro-business proposals to the President’s desk.  Conversely, Democrats will be blocked by the GOP Senate and Trump’s veto pen in advancing any portion of their left-wing agenda.

This means gridlock and virtually totally politicization of the process as Democrats mount a series of investigations to destroy the Trump presidency in the hope of taking over the Senate and White House in 2020 – and even removing Trump in the interim.

If chaos is negatively affecting the market, pick your villain.  Democrats will point to the unconventional style and pugnacious personality of the President and Republicans will cite the threat of all those politically motivated investigations and the unrelenting attacks on all things Trump. Laying the blame is as difficult and meaningless as arguing over who started a barroom fight.

What can be said is that all evidence suggests that – like it or not – the stock market is very partial to Republican pro-business policies.

So, there ‘tis.

About The Author

Larry Horist

So,there‘tis… The opinions, perspectives and analyses of Larry Horist Larry Horist is a businessman, conservative writer and political strategist with an extensive background in economics and public policy. Clients of his consulting firm have included such conservative icons as Steve Forbes and Milton Friedman. He has served as a consultant to the Nixon White House and travelled the country as a spokesman for President Reagan’s economic reforms. He has testified as an expert witness before numerous legislative bodies, including the U. S. Congress. Horist has lectured and taught courses at numerous colleges and universities, including Harvard, Northwestern, DePaul universities, Hope College and his alma mater, Knox College. He has been a guest on hundreds of public affairs talk shows, and hosted his own program, “Chicago In Sight,” on WIND radio. Horist was a one-time candidate for mayor of Chicago and served as Executive Director of the City Club of Chicago, where he led a successful two-year campaign to save the historic Chicago Theatre from the wrecking ball. An award-winning debater, his insightful and sometimes controversial commentaries appear frequently on the editorial pages of newspapers across the nation. He is praised by readers for his style, substance and sense of humor. According to one reader, Horist is the “new Charles Krauthammer.” He is actively semi-retired in Boca Raton, Florida where he devotes his time to writing. So, there ‘tis is Horist’s signature sign off.

3 Comments

  1. Diane Easterday

    Also the fact some people are pulling their profits out because of Dems being in charge. People do not put the faith in secure feeling into their brokers. Too many have taken advantage of their clients, we went thru that.
    Diane

    Reply
  2. miles e drake

    The markets are falling because there is growing evidence that the party of Marx, Mohammed and Mexico may finally be able to pull of the socialist transformation of the United States. We are closer than we had realized to ethnic transformation after wave upon wave of mestizo and mohammedan invasion. The cultural marxists’ Long March through our educational and social institutions has been completed, and the millenial generation will embrace communism when the time finally comes. We have almost reached one-party status, with openly-rigged farcical African-style “elections” becoming the norm. There are armed mobs in the streets and open advocacy of genocide for caucasians, heterosexuals and Christians. Anyone who does not prepare for civil war and if necessary escape from a severely disrupted Venezuela del Norte or Zimbabwe West is not being prudent.

    Reply
  3. Maniel

    Mr. Horist,

    You wrote: “The stock market runs on the future anticipation of profits across a broad range of companies and industries. That is why the record bull market began immediately after President Trump was elected. It was on the ANTICIPATION of tax relief and deregulation that the market moved.”
    I accept your interpretation with the caveat that correlation does not always imply causation.
    You wrote: “So, what has driven down the market? …Where presidential policy can be said to have a negative impact – a cut into profits – are the tariffs.”
    I agree.
    You wrote: “This fear is mitigated to some extent by the understanding that Trump is basically a free-trader and is surgically using temporary tariffs to roll back what every knowledgeable person understands to be trade practices detrimental to the United State – including tariffs imposed by other nations, cyber theft of business research and development and lack of protection of American intellectual property – and these problems go well beyond just China.”
    I would have said that this fear [of tariffs, which target American manufacturers of products built from steel and consumers of those products, as well as American consumers of automobiles, and transfer money which would have gone to American workers who sell and service those products to our beloved federal government, which has a very disruptive effect on international relations since foreign governments tend to be even more protectionist than our own] will only be mitigated when the so-called “free trader” begins paying attention to the effects, rather than his intent, of tariffs. “Surgical strikes” have obviously caused collateral damage.
    You wrote: “The strongest correlation between policy action and drops in stock prices is interest rate increases by the Federal Reserve Bank – and even anticipation of increases in the near future.”
    I agree:
    You wrote: “That is why Trump is jaw-boning the Fed in an effort to have them further delay interest rate increases.”
    When the insulter-in-chief targets you, do you not then have to prove your manhood?
    You wrote “This means gridlock …”
    I love gridlock. Legislation, no matter how foolish, is virtually never undone.
    You wrote: “… the stock market is very partial to Republican pro-business policies.”
    I would have said “partial to pro-business policies,” such as President Kennedy’s tax cuts, Ronald Reagan’s tax cuts, Paul Ryan’s tax cuts, and President Carter’s (and Alfred Kahn’s) deregulation policies.
    Thanks for posting.

    Reply

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