The bears are back. “Both the Dow Jones Industrial Average and the S&P 500 are on pace for their worst December performance since 1931, when stocks were battered during the Great Depression,” writes Michael Sheetz at CNBC. “The Dow and S&P 500 are down 7.8 percent and 7.6 percent this month, respectively.”
Indeed, the Dow Jones declined more than 500 points yesterday in what has been a historically bad December. This is normally a good month for stock prices as the holiday season boosts spending.
“The S&P 500 averages a 1.6 percent gain for December, making it typically the best month for the market,” Sheetz says, citing the Stock Trader’s Almanac.
It is the latest sign that a recession looms in the new year. Bond prices ‘inverted‘ two weeks ago, a rare event that is usually followed by a recession.
Pessimism had already been on the rise for months. In a new survey conducted by Duke University and CFO Global Business Outlook, “Almost half of U.S. chief financial officers believe a recession will strike the U.S. economy by the end of 2019,” Sharon Nunn reports at the Wall Street Journal.
A poll of attendees at the Yale CEO Summit last week also found that “Almost half of the respondents thought the U.S. could wind up in a recession by the end of the month.”
“The greatest threats to U.S. markets, 67 percent said, are U.S. political instability and trade negotiations” — in other words, Donald Trump is driving the country over this economic cliff all by himself. There is no broader, macroeconomic factor at work here.
Agribusiness has lost Chinese markets over silly trade wars, for example, but the policy problems go much deeper than that. This president seems to misunderstand tariffs as a tax on imports rather than a tax on Americans who buy them, and speaks as if tariffs can magically reduce the deficit. That has not happened.
Instead, Trump’s tax cuts — his signature achievement as president, so far — have ballooned the federal debt. Rather than hire new workers, General Motors has bought back its own stock with that money, then announced cuts to their American workforce.
Trump made economic promises that he could never deliver, for they flew in the face of broader economic trends. He vowed to bring back coal jobs to Kentucky, yet there are fewer coal jobs in the state today than when he ran for president, and it’s not because of a ‘war on coal’ but the stark realities of automation and efficiency.
If a recession does hit in the new year, this is hardly the right administration to fix things, either. There will be no Trump stimulus bill. He is far more likely to blame his advisers than heed their advice. He has no Plan B. Republicans will not ride to his rescue, nor will they have new ideas.
The political implications are not hard to read. When the public blames a president for damaging the economy, their re-election prospects dim dramatically and their party is imperiled. Meanwhile. Democratic challengers are set to begin campaigning early next year, possibly mid-recession, while the 2020 Senate map will be much more favorable to them than the 2018 map.
So change may bring prosperity back, but not right away, and not until after millions of Americans have suffered. You can see why Wall Street would be pessimistic right now.
Featured image via screengrab