Charles Gasparino, the senior correspondent for leading cable channel Fox Business, said stock and markets are showing wild swings as investors get nervous about the U.S. economy. While President Trump’s policies of cutting taxes and regulation are more favorable to businesses, those reforms take time to show up in broader growth trends.
“There’s always a delay before such policies produce their intended result (see the gap between the Reagan tax cuts and the booming stock market and economy in the 1980s) and during that delay the markets get antsy,” Gasparino said in the New York Post. “What we have, simply put, is a big old Wall Street debate about whether the Trump tax plan will produce the growth that he says it will produce.”
The Dow Jones Industrial Average, which President Trump celebrated every time it rose another 1,000 points, surged 45 percent after the election to an intraday peak of 26,616.7 last month. The benchmark later fell as much as 10 percent by February 5, erasing gains for the year.
The sell-off was most sudden after the Bureau of Labor Statistics reported strong wage growth for January, triggering fears of inflation and more rate hikes from the Federal Reserve to cool an overheating economy.
“In the long run, stock prices reflect economic fundamentals (which are good and getting better),” Gasparino said. “In the short run they are often messy, trading off of seemingly innocuous headlines, like the bizarre notion now that we might have massive inflation because of a modest uptick in wages that might force the Fed to raise interest rates.”
The popularity of investments such as exchange-traded funds that derive their value from holding an asset such as a stock, bond or derivative contract adds to market volatility, Gasparino said.
“ETFs are a basket of stocks that trade like a single stock, and when it sinks to a certain trading price the computers running it automatically sell,” Gasparino said. “Unlike, say, mutual funds, which are priced out once a day at the market’s close, ETFs are priced as they move, just like stocks, compounding the market’s chaos.”
The economy especially needs a boost from businesses that invest in the U.S. economy by expanding operations and improving worker productivity. That kind of activity will lead to a virtuous cycle of company profitability, jobs growth and more tax revenue.
“Without this type of economic growth, deficits will grow, the Treasury will have to pay more to issue its debt and interest rates will spike sharply, crushing stocks prices and eventually GDP,” Gasparino said. “That will boost GDP enough to begin paying for the tax cuts and eventually the deficit to the point that interest rates will be capped. With solid evidence of GDP and productivity growth, stock prices will resume their rebound.”
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