Trump Should Give Thanks, Not Take Credit, for Economic Growth

The president’s presence alone can’t explain why the whole world is enjoying growth and booming stock markets

In the year since Donald Trump was elected president, the economy and markets have been on a roll. Stocks have set one record after another, unemployment has dropped sharply and the U.S. enjoyed its strongest six months of economic growth since 2014.

Mr. Trump thinks he knows why: “The reason our stock market is so successful is because of me,” he declared earlier this week.

But Mr. Trump should be giving thanks, not taking credit. The entire global economy is picking up steam, and foreign stocks are outperforming American markets. This suggests the U.S.’s good fortune is due less to Mr. Trump’s presence than to a broader, global trend. Years of highly stimulative monetary policies by central banks have finally overcome various postcrisis headwinds holding back growth.

.. growth in China, the eurozone and Japan this year has exceeded both economists’ expectations and those countries’ long-term potential growth rates.

.. Blue chip shares are up 21% in the U.S. since election day last year, 22% in France, 28% in Germany, 34% in Japan and 26% in emerging markets.

.. So why is the market up so much? The overall economy “was better than markets realized this time last year,” says Charles Himmelberg, Goldman’s co-chief markets economist. “It was a little bit of a happy coincidence that markets started to fully price the strength of that macro data when Trump got elected.”

.. The problem is that pace of growth isn’t sustainable. It required employers to add so many more workers that the unemployment rate dropped 0.4 percentage point. Keep that up and the labor market is going to run out of people.

That would finally make the Fed nervous enough about inflationary pressure to pick up the pace of interest rate increases, withdrawing the monetary medicine that got the current global upswing started.

This Market Can’t Go on Much Longer

The stock market has surged 20% since the election, making it expensive by almost any measure. The drivers of the rally are well-known: Strong corporate earnings, solid global growth, central bank stimulus and a relatively stable global geopolitical environment. These positives have made the market one of the calmest of all time, which has given investors more confidence and further boosted stocks.

Can those factors continue? In most cases no, though the timing and size of the next shift is impossible to know. But these trends are interconnected and have reinforced one another on the way up. A crack in one could have an outsize impact on the rest.

.. The strong global economy has been a significant boost to the market. The basic reason is that companies in the S&P 500 get nearly 30% of their revenues from overseas. A weaker dollar, due in part to the slower growth, has further boosted profits. If higher rates in the U.S. boosts the dollar, profits will be under more pressure.
.. What can go wrong? The China debt bubble could finally implode or Europe’s period of political calm could end, but one of the biggest risks is a slowdown in the U.S., which is long overdue for a recession.
..  The problem now isn’t that there are more risks than usual but that investors are acting as if there are almost no risks. An upheaval involving any combination of Russia, Iran, Syria, North Korea or China might be just the thing to remind investors that the world, and the stock market, can be a dangerous place.

Why one hedge-fund titan is bracing for ‘all hell to break loose’ in the stock market

Skeptics of Wall Street’s recent rally, which has been borne on the hope of pro-growth promises from Trump coming to into full view sooner than later, predict that an inevitable failure of the president to make good on his policy promises could jolt markets violently lower.

Singer is among those fearing that very scenario. He is betting that an economic recession may be on the horizon and believes that, with interest rates already near ultralow levels, the Federal Reserve won’t be able to provide a sufficient quantitative-easing cushion, as it did during the 2008-’09 financial crisis.