A stock-market selloff that trimmed 1,800 points from the Dow Jones industrial average in two days shows the risk that President Trump took in tying his administration's policies to record highs.
Investors, not to mention critics, will now be sorely tempted to blame him for the decline, which knocked the Dow 7 percent lower while trimming the S&P 500 and the Nasdaq Composite Index by 6 percent and 5.7 percent, respectively.
But there's no need for Trump, who credited his policies curbing regulation and cutting taxes for the Dow's climb above 26,000, to panic. The blue-chip index, the broader S&P 500 and the tech-heavy Nasdaq Composite are still higher than they were at the end of 2017.
“Markets go up, and markets go down,” Greg McBridge is the senior financial analyst for Bankrate.com told the Washington Examiner. “2017 was abnormal in that the markets were very placid and didn’t post any significant declines,” he added, “but the odds are still in your favor if you’re going to use the market as a barometer of success.”
The selloff that began Friday with a 666-point drop on the Dow Jones and 60 points on the S&P 500 was blamed largely on positive developments in the labor market Friday that make interest-rate increases more likely.
Payroll growth of 200,000 during January outpaced economists’ projections of 175,000, while hourly earnings increased almost 3 percent.
That pushed the likelihood that the Federal Reserve will raise short-term interest rates at its March meeting up five percentage points compared with the start of the week.
The central bank has already signed off on five 25 basis-point hikes since late 2015 after keeping rates near zero for seven years following the 2008 financial crisis, and another increase of the same size would take them to a range of 1.5 percent to 1.75 percent.
While steady upticks benefit banks, which bolster margins by passing on increases more quickly to borrowers than depositors, they can be ominous for consumers with adjustable credit-card rates and companies with low credit ratings and high debt loads.
“Central banks are dialing down stimulus rather than continually adding to it as they have over the past several years,” McBride said.
Still, he views the markets’ drops in the past few days as temporary.
People have more money in their paychecks and corporate bottom lines are getting a boost from the GOP-led tax overhaul, he said. "Those are all positive for the economy and for corporate profits, and, ultimately, that's what drives stock prices."