When markets tumble, Larry Kudlow is there to break the fall.
That is the impression some investors and analysts have formed in recent weeks, as negotiations over U.S.-China trade policy continue, and as the Trump administration’s March 1 deadline for completing an agreement draws near.
These market participants lament not only what they see as a clumsy effort to coax markets higher, but also what they describe as the administration’s unhealthy focus on day-to-day movements in the markets.
The latest example was an appearance by Kudlow, the top White House economic adviser, on CNBC just ahead of Tuesday’s market close, in which he denied reports that a meeting between lower-level U.S. and Chinese officials had been canceled as a result of a lack of progress resolving differences on intellectual-property issues.
Other recent examples include Steven Mnuchin’s widely criticized statement, in the middle of December’s selloff, that the nation’s largest banks have ample liquidity to lend, or the president’s Dec. 8 tweet that “talks with China are going very well!” on a day when the Dow Jones tumbled more than 550 points on fears of lack of progress in negotiations.
Stocks still finished Tuesday with heavy losses but well off session lows, bouncing strongly in the final minutes of trade. The Dow Jones Industrial Average
ended the day down 301.87 points after falling as much as 462 points at its session low. The S&P 500
ended 37.81 points lower, a loss of 1.4%, at 2,632.90 after trading as low as 2,617.27.
This latest effort to “happy talk markets higher,” had investors like Sven Henrich, lead market strategist at NorthmanTrader and a MarketWatch contributor, peeved enough to air their grievances on Twitter:
If it’s not Powell, then it’s another Fed speaker.
If it’s not a Fed speaker it’s Kudlow.
If it’s not Kudlow it’s Mnuchin.
If it’s not Mnuchin it’s Trump.
If it’s not Trump it’s an unconfirmed headline.
Constant efforts to happy talk markets higher.
Smells desperate & blatant.
— Sven Henrich (@NorthmanTrader) January 22, 2019
Todd Harrison, chief investment officer at CB1 Capital concurred:
Been trading 30 years. Seen my fair share. The blatant attempts at manipulating the stock market are beyond the pale. Not about long, short or the next 5%; it’s about the devolution of capitalism and desperation of leadership.$SPX $NDX
— Todd Harrison (@todd_harrison) January 22, 2019
Quoth the Raven Research’s Twitter account joined the party, with tongue firmly planted in cheek:
KUDLOW DENIES CANCELLATION OF TRADE MEETING: CNBC
The meeting was un-cancelled after the Dow fell 450 points
— Quoth the Raven (@QTRResearch) January 22, 2019
Quoth the Raven is referring to the administration’s perceived tendency to flood the zone with upbeat commentary on the state of trade negotiations on days when the stock market is falling, while taking the opposite tone when the market is closed or rising.
This frustrates investors not just because it adds to the volatility caused by competing trade-negotiation narratives in the press, but because, analysts say, it illustrates the administration’s fixation with stock prices.
The White House didn’t immediately reply to an email seeking comment.
“This administration and this president have been using the stock market as a barometer of success, and that will continue going forward,” Michael Arone, chief investment strategist with State Street Global Advisors told MarketWatch. “U.S.-China trade negotiations will be pivotal for determining whether markets can move higher,” he said, adding that because this is the case, investors still must pay attention to administration commentary on the issue, even when it conflicts with reports elsewhere.
Ultimately, efforts to boost investor confidence respecting U.S.-China trade relations will just add to short term noise without shedding any light on a trade conflict that will unfold over years, not months, Barry Bannister, head of institutional equity strategy at Stifel, told MarketWatch.
“We’re sure that the trade spat will be with us for many years to come,” he said, arguing that both countries have interests that are not easily reconcilable. Meanwhile, because “power is not easily given up,” investors should expect Trump and future presidents to “retain their cold-war era powers over trade. If we do get an agreement, and China misbehaves down the road, we’ll see a resumption of trade tensions,” he said.
The cardinal sin, Bannister said, is not the administration’s attempts to control the trade narrative, but it’s fixation on daily movements in the stock market.
“It’s bizarre that the administration is so focused on the stock market, as 1% of the country owns nearly half of all stocks,” he said.
Meanwhile, the daily gyrations of the stock market often reveal little about the state of the real economy, Bannister argued, pointing out that the stock market often rallies most aggressively in the wake of severe recessions, while factors that are good for average Americans, like rising wages, can be bad for corporate bottom lines.
The administration’s obsession with stock valuations, Bannister said, “is either a complete misunderstanding of how the stock market works, or a failure to realize that it’s not part of the populist agenda.”
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