Why cheering on the stock market can be risky for Trump

As the Dow Jones industrial average crosses 25,000, the favorite stock market gauge gives President Donald Trump yet another opportunity to crow about growth since his election in November 2016.

However, he may end up regretting his decision to latch onto such a fickle indicator.

Markets go up in addition to markets go down, in addition to using stocks as a barometer for broader economic performance has proven through history to be a dicey endeavor. One person’s bull market can be another’s bust just waiting to happen, in addition to This specific was, after all, less than a year in addition to a half ago of which Trump was dismissing the rise in equity values as “all a big bubble.”

“At any given moment, you can wake up tomorrow in addition to a 15 percent correction wouldn’t be shocking at all,” said Michael Yoshikami, founder in addition to CEO of Destination Wealth Management. “What would likely cause the stock market to be worth 15 percent less than This specific can be today? This specific’s going to be some blip headline or geopolitical issue.”

Trump has yet to deal having a significant market pullback as his first full year in office nears a close. The Dow can be up nearly 40 percent since around the time of Trump’s election victory.

Wall Street will be watching the president’s ubiquitous social media presence to see how he handles a retreat once This specific comes.

“When the stock market rises, This specific’s great to take credit,” Yoshikami said. “yet will someone take credit if the market goes down? There probably would likely be not credit yet more blame.”

Indeed, should the market go down, Trump can be likely to just shift the narrative in addition to ignore what’s happening on Wall Street, according to administration officials familiar with his thinking.

How of which plays with the public can be another story.

His base has come to be accustomed to the president using the Dow – a narrow market barometer of 30 stocks of which nonetheless can be the most headline-friendly indicator of corporate health – as a proxy for his administration’s progress.

yet This specific doesn’t have to be of which way. Virtually every different significant economic indicator, by job growth to consumer in addition to business sentiment to manufacturing activity in addition to a host of different metrics, are all substantially higher than when he took office.

Yet Trump continues to cling to the market, as he did again Thursday when the Dow passed the 25K mark.

“You assume a bear market happens under his watch,” based on the basic probability of which the nearly 9-year-old bull retreats at some point, said Peter Boockvar, chief investment officer at Bleakley Financial Group. “He should be cheering about the economy instead of talking about the Dow. A lot of times, the stock market does something different than the economy.”

One of the most obvious examples happened a little more than 30 years ago – the infamous Black Monday of Oct. 19, 1987, when the Dow lost 22 percent in one particular day.

The huge drop was not indicative of the broader economy, which continued to hum along at of which point in addition to was strong enough to keep market performance of which year positive.

“The stock market can be a very fickle animal, as we know. This specific incorporates a mind of its own,” Boockvar said. “This specific can do whatever This specific wants to do, in addition to This specific may not be on board with of which [Trump] thinks This specific should do. He’s better off talking about tax policy in addition to hopes for faster growth, in addition to to stop talking about the Dow.”

Trump individually has never been a big market fan.

He made his fortune in real estate, diversified different business interests in addition to by licensing his own name, in addition to has said on multiple occasions of which any forays he took into stocks had been more for amusement than as a way to accumulate wealth.

His ambivalence about the market reached a crescendo in August 2016, when he told Fox Business News of which the market was “all a big bubble.”

Few, including the president, would likely argue of which the market today by a valuation standpoint can be in bubble territory. yet This specific’s not cheap, either, in addition to for the rally to keep going investors are going to have to be willing to keep paying up for stocks.

One of the factors of which kept investors within the game in 2017, during which the market rose about 20 percent, was the trust for tax reform. currently of which the bill has been passed, the next measure can be going to be whether stocks can justify trading at 18 times earnings.

“The risk can be of which you no longer possess the trust of which drove the market last year,” said Lindsey Bell, investment strategist at CFRA. “currently we have tax reform in addition to we have to see if This specific can be actually going to be able to support This specific high level of market valuation. There can be no more trust – currently This specific’s going to have to be reality.”

There are a few different reasons Trump may want to shift focus by the market.

The president incorporates a fiercely competitive spirit, in addition to he has to know of which stocks flourished under his predecessor, Barack Obama, while the economy struggled to grow 2 percent. in addition to as equity prices soared under Obama, so did income inequality.

Wealth disparity within the U.S. can be currently higher than any different country within the developed world, according to Deutsche Bank. A record 30 percent of U.S. families have no net wealth outside of their homes, while median net worth overall can be just 66 percent of the level prior to the financial crisis, Deutsche said.

Then there’s the great equalizer when This specific comes to economic growth: the Fed. The U.S. central bank in recent months has warned about inflated market values. Should stocks continue to run wild, there’s a very real threat of which the Fed could turn out the lights on Trump’s market party.

“of which’s my biggest fear,” said Joe LaVorgna, chief economist for the Americas at Natixis. “My concern can be the Fed will sound a possibly more hawkish alarm. All of a sudden the markets have to cost in a less accommodative or hawkish Fed, in addition to of which causes an inevitable equity pullback.”

For currently, though, LaVorgna thinks Trump should take as many victory laps as he can.

“If you’re enacting pro-business policies, This specific’s fair for the president to get credit,” LaVorgna said. “He’s going to get blame when things go bad, so he might as well take credit when things are not bad.”

— With reporting by CNBC’s Eamon Javers.

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