Stock Market Crash Could Be Trump’s Worst Nightmare

  • US stock markets fell on Wednesday. Notably, the Dow Jones Industrial Average Index fell into the bear market territory. Looking at the futures, the S&P 500 might also enter a bear market today.
  • On Wednesday, President Trump addressed the nation about steps taken to control the coronavirus. However, markets were disappointed by the fiscal response. The Dow Jones futures fell after President Trump’s address.

US stock market crash

US stock markets crashed on Wednesday. Now, the Dow Jones (NYSEARCA:DIA) has fallen more than 20% from its peak, which means that it’s in the bear market territory. Yesterday, the crash broke an 11-year bull market, which was the longest in history. The S&P 500 (NYSEARCA:SPY) narrowly escaped falling into the bear market. However, looking at the futures, the S&P 500 might also enter the bear market territory today.

Dow Jones futures

Notably, Dow Jones futures fell sharply after President Trump addressed the nation yesterday. US stock markets had fallen sharply during trade as well. Markets expected significant fiscal measures to offset the economic impact of the coronavirus. While President Trump did talk about some steps, they fell short of markets’ expectations. President Trump mentioned a booming US economy a few times in the speech. He said that “this vast economic prosperity gives us flexibility, reserves, and resources to handle any threat that comes our way.” President Trump also talked about the strength of the US financial system and historically low unemployment rates. He said that “this is not a financial crisis.”

Despite a strong economy, the US fiscal deficit is high. As a result, President Trump will likely have less room to maneuver on the fiscal front. The monetary policy is also quite accommodative. Interest rates never really reverted to normalized levels over the last decade.

Trump and US stock market crash

President Trump attaches a great deal of importance to stock market returns. He promptly tweets whenever the Dow Jones Index hits a new benchmark. On multiple occasions, including during his India visit this year, President Trump said that US stock markets would crash if he isn’t reelected. Equity markets have been strong in the last three years of his presidency. President Trump’s tax cuts were among the major factors that helped catapult US stock markets to record highs.

Will crash impact Trump’s reelection chances?

Last month, as the US stock market started to crash, President Trump put some blame on Democrats. The stock market crash is coming at possibly the worst time for President Trump. If the coronavirus situation deteriorates over the next few months, it could hit US economic activity. Notably, President Trump has made a strong US economy and booming stock markets the hallmark of his 2020 campaign. If the economic situation deteriorates more or if the US economy enters into a recession before the November presidential elections, it could impact President Trump’s reelection chances.