Donald Trump has hypnotized a certain part of the American public into thinking he would make a good President. He’s done so by tapping into people’s deepest fears at a time when many Americans are on edge. It seems some of those fears are spilling into the stock market.
Let’s call it the Donald Trump Stock Market Effect.
Today is a good example, though not a pleasant one. The Dow plummeted more than 400 points in the first hour of Wednesday trading, the Nasdaq posted more intraday lows than at any point since 2008, and the S&P 500 hit a 15-month low. The VIX, a.k.a. the investor “fear gauge,” spiked 18%, hitting its highest point in more than four months.
Analysts are blaming the sudden Wall Street panic on another decline in oil prices, as West Texas Crude fell below $27 a barrel for the first time since September 2003. And that’s probably part of the reason stocks are tanking today. But low oil prices alone normally wouldn’t cause this level of panic. They didn’t 18 months ago. So what’s changed?
Donald Trump. I say this somewhat tongue in cheek. Really, Americans’ fears stem from the endless loop of ISIS attacks, senseless shootings in churches, schools and workplaces, acts of police brutality and racial profiling, rampant cyber terrorism, etc. Donald Trump—and to lesser and varying degrees, Ted Cruz and Bernie Sanders—is merely stoking those fears for his own personal gain. By championing himself as America’s knight in shining armor who will make all the bad people go away, fear is the foundation upon which Trump hopes to get elected.
And by giving voice to those fears—albeit in a twisted and self-serving way—Trump has shined a 50,000-watt light bulb on what is making Americans buy guns and state-of-the-art home security systems. With the spotlight on it, that fear is seeping into every pore of society right now, including the stock market.
The Donald Trump Stock Market is like a disease that’s infecting all sectors. No, Donald Trump isn’t directly responsible for today’s disturbing crash. But today is a symptom of the disease that’s stricken the market for the past six months. When you’re already sick, it doesn’t take much to make you feel worse. And since last summer, the market has been sick.
Fear has had a lot to do with it. Through all of 2014 and the first seven months of 2015, the VIX spiked higher than 25 just once; it has done so on seven occasions since late August. Investors are fearful. True, the record highs the market was reaching on almost a weekly basis in 2013 and 2014 were unsustainable, and a lot of this is merely a correction. But a lot has changed since the initial pullback in August and September, to the point where stocks have actually become undervalued. Fear is keeping it from getting well.
I’m not suggesting that when Donald Trump says, “ban Muslims,” Wall Street interprets that as “sell stocks.” I don’t think the institutions are paying that close attention to what he says, as they shouldn’t. But Wall Street is often a reflection of what Americans are feeling at a given moment in time, and right now Americans are fearful.
Mind you, not everyone fears what Donald Trump tells them they should fear. If they’re like me, the thing they fear most is Donald Trump as President. So the Donald Trump Stock Market Effect is actually two-pronged, influencing those who fear the America in which we currently live, and those who fear America a year from now if Trump were to actually take office.
So what’s the cure for the Donald Trump Stock Market? Is it as simple as Trump disappearing from the race as soon as possible? Probably not.
It will take a while to undo some of the damage he’s done to America’s collective psyche and, to some, their confidence in their country. And even without Trump, these toxic presidential debates will go on, with the central message being that America is broken, and needs to be restored to its former greatness. (Punch line: And I’m just the candidate to do it!)
Whether you agree with it or not, you can only hear people say that America stinks so many times before you start to believe it too. That gets you feeling less confident about your government (if that’s possible), less confident about your position within that allegedly broken society, and eventually, less confident about your investments. Sensing the impending doom that Donald Trump and others (on both sides of the aisle) keep talking about, you decide it’s time to sell all your stocks, turn them into cash and throw it all under a mattress somewhere. Fear takes hold of you and your portfolio.
For certain Americans to feel safe enough to come out of their bunkers, Donald Trump will need to go away and stay away. Until that happens, the Donald Trump Stock Market will go on.