Stock market plunge dents Democratic narrative
Obama's upbeat economic assessment is followed by a dramatic sell-off, with Clinton's fate in the balance.
By Ben White
Politico
January 18, 2016
NEW YORK — Wall Street collapsed again on Friday, extending a brutal market rout that threatens to dent Democrats’ chances in 2016 and give a boost to Republicans who say the world is an increasingly dangerous mess.
The Dow dropped 390 points on Friday amid falling oil prices, weak U.S. economic data and more fear of a major slowdown in China. The blue chip index is off over 8 percent so far in 2016, fueling arguments from Republicans that despite consistent job growth, the U.S. economy is in deep trouble.
NEW YORK — Wall Street collapsed again on Friday, extending a brutal market rout that threatens to dent Democrats’ chances in 2016 and give a boost to Republicans who say the world is an increasingly dangerous mess.
The Dow dropped 390 points on Friday amid falling oil prices, weak U.S. economic data and more fear of a major slowdown in China. The blue chip index is off over 8 percent so far in 2016, fueling arguments from Republicans that despite consistent job growth, the U.S. economy is in deep trouble.
The stock market is not a direct reflection of the underlying economy, but volatility and major declines tend to add to economic anxiety and make it harder for the incumbent party to hold onto the White House. Americans’ views about the direction of the nation are already dismal, and a collapsing stock market is not likely to help, analysts say.
“This certainly weakens the upbeat narrative that President Obama offered earlier this week in the State of the Union that things have turned around. That’s a much tougher case to make now,” said Greg Valliere, chief strategist at Horizon Investments. “It’s already tough for one party to retain the White House for three terms. And if Hillary Clinton is hoping to run on the fact that things are clearly getting better, that is also now a tougher case to make for her. Average Americans see regular declines of this magnitude and that’s deeply unnerving to them.”
The hope among Democrats is that the current stock market chaos will prove short-lived and fundamentals of the underlying U.S. economy — including strong job growth, low gas prices and a resurgent auto industry — will assert themselves as the year unfolds to ease voter anxiety.
But market experts say the terrible start on Wall Street — which is now the worst opening to a year on record — could persist for months and strongly benefit Republican candidates like Donald Trump who paint a very grim picture of the nation’s direction.
“The eighth years of an incumbent’s term in the White House have all been pretty horrible for markets with the exception of 1988 when Ronald Reagan was leaving office,” said Jeff Hirsch, editor of the “Stock Trader's Almanac” and an expert in market history. “And the first five months of an election year are generally very telling. If you’ve got a down year, that’s usually indicative of the incumbent White House party being ousted. That clearly puts a damper on Clinton’s prospects. The stock market is a voting mechanism.”
The dark mood on Wall Street plays directly into the hands of Republicans who used Thursday night’s GOP debate to mock Obama’s upbeat State of the Union address in which the president said anyone who is saying the U.S. economy is in decline is “peddling fiction.”
“The president tried to paint a rosy picture of jobs. And you know, he's right. If you're a Washington lobbyist, if you make your money in and around Washington, things are doing great,” Sen. Ted Cruz (R-Texas) said. “The millionaires and billionaires are doing great under Obama. But we have the lowest percentage of Americans working today of any year since 1977. Median wages have stagnated. And the Obama-Clinton economy has left behind the working men and women of this country.”
Former Florida Gov. Jeb Bush said Obama’s address reflected an “alternative universe," adding that “the simple fact is that the world has been torn asunder.”
And Trump gladly accepted being described as an “anger” candidate. “I'm very angry because our country is being run horribly, and I will gladly accept the mantle of anger,” Trump said in one of his bigger applause lines of the night. “Our country is being run by incompetent people. And yes, I am angry.”
Not all analysts believe the current down draft on Wall Street will persist or that it reflects any fundamental problems with the American economy. While these analysts acknowledge that big down swings tend to hurt investor and consumer confidence, they say persistent job growth, especially in the services sector, will eventually lead to higher wages and better feelings among voters.
“We are not going to see a big drop in sentiment and when you’ve got such a big drop in gas prices, that will mitigate the hit quite substantially,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Assuming the market stabilizes — and I think it will — most of that extra money from low gas prices will get spent. Market turbulence doesn’t last forever, and if you are a Democrat, you might be quite glad to get it over with now and hope that by November everyone will forget about it.”
Shepherdson and other more hopeful analysts note that the Dow is dominated by big industrial companies that are more reliant on exports, especially to China, and does not reflect strength in the much larger services sector of the U.S. economy.
“It’s really important to remember that the stock market is not the same thing as the real economy,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former top adviser to Vice President Joe Biden. “They are related and a large and persistent drop in wealth does eventually hurt consumption. But Republicans are completely wrong about the current direction. The U.S. economy actually looks pretty damned good compared to all the rest, especially when you are talking about the labor market. While wages have not grown very quickly in nominal terms when there is zero inflation that means there have been real wage gains for lots of folks.”
One other silver lining for Democrats could be that the market chaos causes the Federal Reserve to pause in its planned interest rate hiking campaign, something that could lift stocks and overall economic activity.
But while much of Friday’s market sell-off reflected continued concerns over oil prices and China, it also reflected soft data on U.S. economy. The Commerce Department reported Friday that sales at retail stores and restaurants fell 0.1 percent in December, a worrisome signal for an economy dependent on domestic consumption. Industrial production also fell 0.4 percent in December. And some economists now worry that the U.S. has seen the peak for job creation in this economic cycle, something that would bode ill for Democrats running for president this year.
“That final surge in jobs creation in the fourth quarter may have been peak in the labor market for this cycle,” Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi UFJ, said in a note to clients on Friday. “This is a time for close monitoring of economic and financial market conditions as the U.S. could be entering a serious slowdown.”
In one ironic twist, Republican candidates for president may be in part creating the same market volatility that they could ultimately benefit from as the election approaches. Market analysts say the uncertainty of an election year in which Trump has stunned many observers with his consistent dominance of the GOP field is a contributing factor to the chaos on Wall Street.
“If it’s Hillary Clinton or Bernie Sanders versus Donald Trump, that’s not a very palatable choice for Wall Street," said Valliere. "And with Trump, you have the fear of a trade war with China. If it looks like Trump is going to be the nominee. That is not a positive story for markets.”
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Stock market plunge dents Democratic narrative
“This certainly weakens the upbeat narrative that President Obama offered earlier this week in the State of the Union that things have turned around. That’s a much tougher case to make now,” said Greg Valliere, chief strategist at Horizon Investments. “It’s already tough for one party to retain the White House for three terms. And if Hillary Clinton is hoping to run on the fact that things are clearly getting better, that is also now a tougher case to make for her. Average Americans see regular declines of this magnitude and that’s deeply unnerving to them.”
The hope among Democrats is that the current stock market chaos will prove short-lived and fundamentals of the underlying U.S. economy — including strong job growth, low gas prices and a resurgent auto industry — will assert themselves as the year unfolds to ease voter anxiety.
But market experts say the terrible start on Wall Street — which is now the worst opening to a year on record — could persist for months and strongly benefit Republican candidates like Donald Trump who paint a very grim picture of the nation’s direction.
“The eighth years of an incumbent’s term in the White House have all been pretty horrible for markets with the exception of 1988 when Ronald Reagan was leaving office,” said Jeff Hirsch, editor of the “Stock Trader's Almanac” and an expert in market history. “And the first five months of an election year are generally very telling. If you’ve got a down year, that’s usually indicative of the incumbent White House party being ousted. That clearly puts a damper on Clinton’s prospects. The stock market is a voting mechanism.”
The dark mood on Wall Street plays directly into the hands of Republicans who used Thursday night’s GOP debate to mock Obama’s upbeat State of the Union address in which the president said anyone who is saying the U.S. economy is in decline is “peddling fiction.”
“The president tried to paint a rosy picture of jobs. And you know, he's right. If you're a Washington lobbyist, if you make your money in and around Washington, things are doing great,” Sen. Ted Cruz (R-Texas) said. “The millionaires and billionaires are doing great under Obama. But we have the lowest percentage of Americans working today of any year since 1977. Median wages have stagnated. And the Obama-Clinton economy has left behind the working men and women of this country.”
Former Florida Gov. Jeb Bush said Obama’s address reflected an “alternative universe," adding that “the simple fact is that the world has been torn asunder.”
And Trump gladly accepted being described as an “anger” candidate. “I'm very angry because our country is being run horribly, and I will gladly accept the mantle of anger,” Trump said in one of his bigger applause lines of the night. “Our country is being run by incompetent people. And yes, I am angry.”
Not all analysts believe the current down draft on Wall Street will persist or that it reflects any fundamental problems with the American economy. While these analysts acknowledge that big down swings tend to hurt investor and consumer confidence, they say persistent job growth, especially in the services sector, will eventually lead to higher wages and better feelings among voters.
“We are not going to see a big drop in sentiment and when you’ve got such a big drop in gas prices, that will mitigate the hit quite substantially,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Assuming the market stabilizes — and I think it will — most of that extra money from low gas prices will get spent. Market turbulence doesn’t last forever, and if you are a Democrat, you might be quite glad to get it over with now and hope that by November everyone will forget about it.”
Shepherdson and other more hopeful analysts note that the Dow is dominated by big industrial companies that are more reliant on exports, especially to China, and does not reflect strength in the much larger services sector of the U.S. economy.
“It’s really important to remember that the stock market is not the same thing as the real economy,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former top adviser to Vice President Joe Biden. “They are related and a large and persistent drop in wealth does eventually hurt consumption. But Republicans are completely wrong about the current direction. The U.S. economy actually looks pretty damned good compared to all the rest, especially when you are talking about the labor market. While wages have not grown very quickly in nominal terms when there is zero inflation that means there have been real wage gains for lots of folks.”
One other silver lining for Democrats could be that the market chaos causes the Federal Reserve to pause in its planned interest rate hiking campaign, something that could lift stocks and overall economic activity.
But while much of Friday’s market sell-off reflected continued concerns over oil prices and China, it also reflected soft data on U.S. economy. The Commerce Department reported Friday that sales at retail stores and restaurants fell 0.1 percent in December, a worrisome signal for an economy dependent on domestic consumption. Industrial production also fell 0.4 percent in December. And some economists now worry that the U.S. has seen the peak for job creation in this economic cycle, something that would bode ill for Democrats running for president this year.
“That final surge in jobs creation in the fourth quarter may have been peak in the labor market for this cycle,” Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi UFJ, said in a note to clients on Friday. “This is a time for close monitoring of economic and financial market conditions as the U.S. could be entering a serious slowdown.”
In one ironic twist, Republican candidates for president may be in part creating the same market volatility that they could ultimately benefit from as the election approaches. Market analysts say the uncertainty of an election year in which Trump has stunned many observers with his consistent dominance of the GOP field is a contributing factor to the chaos on Wall Street.
“If it’s Hillary Clinton or Bernie Sanders versus Donald Trump, that’s not a very palatable choice for Wall Street," said Valliere. "And with Trump, you have the fear of a trade war with China. If it looks like Trump is going to be the nominee. That is not a positive story for markets.”
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Stock market plunge dents Democratic narrative
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