If you hold stock—and most Americans do—the financial news of the last few days has been pretty jarring.
On Friday, the country’s best-known stock index, the Dow Jones Industrial Average, fell 666 points. On Monday, it fell again another 1,178 points, its largest one-day point decline ever. Overall, the major indexes are down more than 5 percent in the last two trading days, recalling some of the depths of the stock market meltdown of 2008.
As painful as that is for investors watching parts of their retirement portfolios disappear, the last few days of the stock market also represent an important teachable moment – about stocks, our economy, and our political leaders.
First, some context. The recent losses, while steep, take stocks to about where they were in November 2017. They are still up double digits from a year ago, and the major indexes are still several times higher than they were in 2009.
The latest selloff started after a jobs report on Friday that showed unemployment continuing near 20-year lows and wages accelerating. Rising wages and more jobs sound good to most people. But to Wall Street traders, they are signs that the economy is too strong and could lead the Federal Reserve to raise interest rates, which makes stocks less appealing. Economists agree that important benchmarks of the U.S. economy, including corporate earnings and business and consumer spending, remain healthy.
The stock market drop is also a warning shot to politicians tempted to claim credit for external events over which they have no control. President Trump, in his State of the Union message last week, crowed that “the stock market has smashed one record after another.” That came on top of tweets about the “most explosive Stock Market rally that we’ve seen in modern times” and the “record high stock market.” In the last year, Trump has touted the stock market on Twitter an average of once a week.
The stock market is but one factor to gauge the health of the economy. It represents collective wisdom of whether buying ownership shares in companies is a wise investment. Sometimes it goes up, sometimes down. On average, it rises. In the last 15 years, it has risen in 12.
If political leaders condition people to credit politicians for a thriving stock market, they shouldn’t be surprised when people want to blame politicians for a sagging stock market. The best the White House could muster on Monday was the anodyne statement: “We’re always concerned when the market loses any value, but we’re also confident in the economy’s fundamentals.”
Rather than claim credit for other people’s investment decisions, the wiser and more truthful approach would be to talk about the positive policies the government can and does control. It’s not as though the Trump team doesn’t have any accomplishments on that score: Both the tax reform bill passed in December and the ongoing work of dismantling the Obama administration’s regulatory state have encouraged robust economic growth, whatever stocks might do from week to week.
For more than a year, progressive commentators, witnessing the stock market’s bullish climb, have warned that a bullish Wall Street doesn’t signify a healthy economy. That is true—and the reverse is true, too.
