The Finance 202: Wall Street and Washington have never been further aparthttps://www.washingtonpost.com/news/powerpost/paloma/the-finance-202/2
President Trump wants you to ignore the mess spilling out from behind the White House curtain and focus instead on the surging stock market. Investors on Thursday were happy to oblige, pushing the Dow Jones industrial average past 25,000 as the historic rally extended its run.
Amid the ongoing firestorm over Trump’s falling-out with his onetime chief strategist Stephen K. Bannon — along with other bombshells from Michael Wolff’s new inside look at Trump’s administration — the president paused yesterday to cheer the market milestone. See him here, resetting the bar at 30,000:
JUST IN: Shortly after the Dow cracked 25K, President Trump said: "So, I guess our new number is 30,000" pic.twitter.com/fRzljkPF7V— CNBC Now (@CNBCnow) January 4, 2018
Here was Trump sounding off on Twitter late Thursday:
The Fake News Media barely mentions the fact that the Stock Market just hit another New Record and that business in the U.S. is booming...but the people know! Can you imagine if “O” was president and had these numbers - would be biggest story on earth! Dow now over 25,000.— Donald J. Trump (@realDonaldTrump) January 5, 2018
And again this morning:
Dow goes from 18,589 on November 9, 2016, to 25,075 today, for a new all-time Record. Jumped 1000 points in last 5 weeks, Record fastest 1000 point move in history. This is all about the Make America Great Again agenda! Jobs, Jobs, Jobs. Six trillion dollars in value created!— Donald J. Trump (@realDonaldTrump) January 5, 2018
The nation’s political and financial capitals have never felt so far apart. Washington is kicking off the new year with a fresh round of Trump-fueled chaos. The president threatened a nuclear strike against North Korea in a Tuesday evening tweet; issued a statement Wednesday accusing his former campaign manager and chief strategist of having “lost his mind”; and signaled he’s considering bringing libel charges against Wolff on Thursday and demanded the publisher cease and desist further printing of iits distribution. Critics are raising fresh questions about his fitness to serve.
On Wall Street, meanwhile, the sky hardly seems the limit.
The Wall Street Journal contextualizes the latest record, the fastest 1,000-point gain in the Dow’s history: “The S&P 500’s long-running rally also reached a new landmark Thursday, becoming the greatest bull market in the postwar era. The broad index has more than quadrupled since the bull market began in March 2009, surpassing the tech-fueled rally of the 1990s, according to the research firm Leuthold Group, which excluded dividends from its calculations. The Dow has risen 283% over that same period, according to the WSJ Market Data Group.”
Market watchers say that after locking in a massive corporate tax cut that is helping to turbocharge stock prices, there isn’t much news from Washington that can slow the running of the bulls on Wall Street. “I’m more interested in what tomorrow’s employment report will show on the wage front than I am in the tweets coming out of the White House, and the markets feel the same way,” says Ed Yardeni, president of investment advisory firm Yardeni Research.
“All the market really cares about is when’s the next recession and what are earnings going to be doing until then,” Yardeni continued. “Right now, the answer seems to be the next recession is still far off and earnings will turn out to be better than they were a year or two ago now that we’ve got some tax cuts. More importantly, the global economy is booming. And the U.S. labor market is very tight but inflation remains very low. That’s a nirvana situation.”
Investors weren't so zen last year. On May 17, stocks suffered their worst sell-off in eight months, with the Dow shedding 1.8 percent, as investors absorbed the news that former FBI director James B. Comey had written a memo detailing Trump’s request that he drop an investigation into former national security adviser Michael Flynn.
And the market flinched again in August on rumors that Trump's chief economic adviser Gary Cohn was heading for the exits. In both cases, investors feared White House turmoil would derail the administration’s push for fiscal stimulus, primarily from tax cuts.
Passage of the tax package at the end of last year means investors have less to lose from the mess in Washington. “I think the market has, over time, been able to separate the substance from the silliness,” Compass Point’s Isaac Boltansky says. “West Wing squabbles inherently draw D.C.’s attention, but with tax reform finalized, investors are refocusing on fundamentals.”
And it’s true that Washington headlines only spooked stocks temporarily, and marginally, last year. Back on Oct. 23, the rally broke another record it has continued to extend since: The S&P 500's longest streak without a 3 percent selloff. Now, investors appear hardier than ever. That prospect could soon be tested, as Cohn looks primed to leave in the near future and the Russia probe — still just a germ when the fact of the Comey memo surfaced in May — draws ever closer to Trump and his top lieutenants.
Trump's trade policy poses a potentially graver and more immediate risk. "We don’t know how the NAFTA negotiations are going to land,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, notes, pointing in addition to the possibility of a tit-for-tat trade fight with China.
It's arguably the market's last hangup with Trump's leadership. “We’re all obsessed with Trump. We want to see the world through Trump,” Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management in New York, tells The Post's David J. Lynch. “But the effect that politics has on economics is a bit limited because of the very strong institutional structures in the United States, in contrast to the emerging markets . . . where you have to pay more attention to the political noise.”You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington. Not a regular subscriber? SIGN UP NOW MARKET MOVERS
— Thank Boeing. The Post's Allan Sloan: "If you want to know why the Dow soared above 25,000, I’ll give you a one-word answer: Boeing. The aircraft maker is by far the single largest reason that the Dow Jones industrial average, to give the oh-so-popular market indicator its full name, is flying high. Through Dec. 22, Boeing stock was up 95 percent for the year, adding 960 points to the Dow, according to information I got from Howard Silverblatt, senior industry analyst for S&P-Dow Jones Indices. Boeing’s boost to the Dow’s takeoff was more than double that of the second-biggest contributor, Caterpillar, which accounted for 434 points."
— When will it end? NYT's James B. Stewart: "It’s probably no surprise that Burton G. Malkiel, the renowned emeritus professor of economics at Princeton and author of the 1973 classic 'A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing,' recommends that investors 'stay the course.' 'If the sharp rise in the stock market in 2017 has unbalanced your portfolio with a higher proportion of equities than is consistent with your risk tolerance, then you could do some rebalancing by trimming the equities down to the proportion at which you are comfortable,' Mr. Malkiel said. 'But do not try to time the market. Nobody can consistently time the market, and those who try it usually fail.'"
— Individuals sit it out. WSJ's Akane Otani and Chris Dieterich: "One of the biggest surprises of the U.S. stock market’s relentless rally is how many individual investors have run away from it... Throughout the nearly nine-year surge in share prices, individual investors have continued to yank money out of funds that own U.S. stocks. Nearly $1 trillion has been pulled from retail-investor mutual funds that target U.S. stocks since the start of 2012, according to EPFR Global, a fund-tracking firm. Over that same period through Wednesday, the S&P 500 soared 116% and, along with the Dow Industrials and Nasdaq Composite Index, rose to 190 all-time highs... Rather than celebrating this wealth-generating machine, individual investors have made clear in multiple surveys just how little enthusiasm they have for this stock market."Jobs Report Expected to Show Unemployment Holding Steady Economists surveyed by The Wall Street Journal expect employers added 180,000 jobs in December and see the unemployment rate holding steady at 4.1%. WSJ Here's How the Winter Deep Freeze Will Affect the U.S. Economy A winter storm sweeping the U.S. East Coast after a week of very low temperatures is probably boosting demand for boots and mittens-- and thanks in part to its timing, it shouldn’t chill economic data more broadly. Bloomberg Pot Stocks Plunge on Report U.S. to Rescind Expansion Policy Cannabis stocks plunged on a report that U.S. Attorney General Jeff Sessions is moving to revoke policies that allowed the legalization of marijuana to spread across several U.S. states -- including California, which is now the world’s biggest market for the drug. Bloomberg MONEY ON THE HILL
— Some companies will take short-term hits. NYT's Jesse Drucker: "Over the next few weeks, some of the world’s biggest companies, household names including Microsoft, Google and Johnson & Johnson, are likely to warn that their financial results will be severely dented, if not altogether wiped out, by huge tax bills that they have to pay to the Internal Revenue Service. Don’t be fooled. The big one-time losses are a prelude to even bigger profits — a paradox caused by the tax cuts that recently zoomed through Congress and that largely benefit corporations. A couple of provisions in the tax package are prompting many companies — those based in the United States as well as some foreign corporations with big American presences — to pay the taxman while anticipating huge savings for decades to come. The biggest factor, by far, is the requirement that American companies bring back money that they claimed to have earned via overseas subsidiaries, most of them in tax havens such as Luxembourg, Grand Cayman and Bermuda."
— California tests SALT dodge. The Post's Damian Paletta: "A California Senate leader introduced legislation Thursday aimed at circumventing a central plank in the new Republican tax law, introducing a model that — if successful — could be replicated across the country. California Senate President Pro Tempore Kevin de León (D) introduced a bill that would allow taxpayers to make a charitable donation to the California Excellence Fund instead of paying certain state taxes. They could then deduct that contribution from their federal taxable income. The bill is meant to completely upend part of the tax law that congressional Republicans passed last year."Fannie-Freddie Overhaul Might Mint Hedge Fund Riches, Losses They’ve lost in court. They’ve been rebuffed by government agencies. Now, the fates of hedge funds and other investors in mortgage-finance giants Fannie Mae and Freddie Mac could lie with an old adversary: the U.S. Congress. Bloomberg TRUMP TRACKER
— Trump re-ups demand for border wall. The Post's Ed O'Keefe and David Nakamura: "Trump on Thursday called on Congress to deliver a bipartisan deal protecting younger undocumented immigrants from deportation, but he maintained his demand for a border wall and cuts to legal immigration that Democrats have opposed. 'I think it can be bipartisan,' Trump said at the White House ahead of a meeting with Republican senators on immigration. 'I hope it can be bipartisan. It can take care of a lot of problems; it would be really nice to do it in a bipartisan way.' Lawmakers are facing a March 5 deadline to pass legislation to help 'dreamers,' immigrants brought to the country illegally as children, after Trump announced in September he would terminate an Obama-era program called Deferred Action for Childhood Arrivals (DACA) that has provided two-year work permits to hundreds of thousands of them. Nearly 700,000 DACA recipients are enrolled in the program; after March 5, nearly 1,000 per day will lose their work permits unless Congress acts."
The White House plans to ask for $18 billion to build 700 miles of new and replacement barriers, WSJ's Laura Meckler reports: "The request, if granted, would be a major expansion from the 654 miles of barrier now, bringing the total to nearly 1,000 miles—about half of the entire southwest border. The plans are laid out in a document prepared by the Department of Homeland Security for a group of senators who asked the administration to detail its request for border security."
— Bannon excommunicated. The Post's Michael Scherer, Bob Costa and Roz Helderman: "Former White House chief strategist Stephen K. Bannon’s hopes of leading a revolt in the Republican Party this year suffered a severe blow Thursday as his allies rebuked and abandoned him following a nasty public break with President Trump. Candidates who once embraced Bannon distanced themselves from his efforts, groups aligned with his views sought separation, and his most important financial backer, the billionaire Mercer family, which has championed him for years, announced that it was severing ties. Even his position as chairman of Breitbart News, a website he has referred to as one of his most effective 'weapons,' was being reviewed by the company’s leadership, according to people familiar with the talks — a move that White House press secretary Sarah Huckabee Sanders publicly encouraged at Thursday’s White House news briefing."
— Trump pushed for Sessions to protect him. The NYT's Michael Schmidt has a bombshell report, stuffed with revelations about evidence special counsel Robert Mueller has compiled to build an obstruction case against the president. You can read it in its entirety here, and you should.
Here's the top: "Trump gave firm instructions in March to the White House’s top lawyer: stop the attorney general, Jeff Sessions, from recusing himself in the Justice Department’s investigation into whether Mr. Trump’s associates had helped a Russian campaign to disrupt the 2016 election. Public pressure was building for Mr. Sessions, who had been a senior member of the Trump campaign, to step aside. But the White House counsel, Donald F. McGahn II, carried out the president’s orders and lobbied Mr. Sessions to remain in charge of the inquiry, according to two people with knowledge of the episode.
Mr. McGahn was unsuccessful, and the president erupted in anger in front of numerous White House officials, saying he needed his attorney general to protect him. Mr. Trump said he had expected his top law enforcement official to safeguard him the way he believed Robert F. Kennedy, as attorney general, had done for his brother John F. Kennedy and Eric H. Holder Jr. had for Barack Obama. Mr. Trump then asked, “Where’s my Roy Cohn?” He was referring to his former personal lawyer and fixer, who had been Senator Joseph R. McCarthy’s top aide during the investigations into communist activity in the 1950s and died in 1986. The lobbying of Mr. Sessions is one of several previously unreported episodes that the special counsel, Robert S. Mueller III, has learned about as he investigates whether Mr. Trump obstructed the F.B.I.’s Russia inquiry."Treasury sanctions Iranian entities linked to ballistic missile production The U.S. Treasury Department's actions come amid anti-government protests in Iran, which have received vocal support from the White House. Politico Energy and Environment Trump administration plan would widely expand drilling in U.S. continental waters The Trump administration unveiled a controversial proposal Thursday to permit drilling in most U.S. continental-shelf waters, including protected areas of the Arctic and the Atlantic, where oil and gas exploration is opposed by governors from New Jersey to Florida, nearly a dozen attorneys general, more than 100 U.S. lawmakers and the Defense Department. Under the proposal, only one […] Darryl Fears Scaramucci denies report about possible WH return Former White House communications director Anthony Scaramucci on Thursday denied that he's been saying President Donald Trump wants him back in the West Wing. CNN POCKET CHANGE Wonkblog Massive new data set suggests economic inequality is about to get even worse It shows the rich not only get richer, but they've gotten richer faster over the past 150 years. And as the acceleration continues, the working class will never catch up. Christopher Ingraham Rise of Bitcoin Competitor Ripple Creates Wealth to Rival Zuckerberg A co-founder of Ripple, a virtual currency, could briefly lay claim to being the world’s fifth richest person on Thursday, bypassing Mark Zuckerberg, as the Bitcoin boom widened. NYT Uber Co-Founder Travis Kalanick Plans to Sell 29% of Stake Former Uber Technologies Inc. Chief Executive Officer Travis Kalanick, who has long boasted that he’s never sold any shares in the company he co-founded, plans to sell about 29 percent of his stake in the ride-hailing company, people with knowledge of the matter said. Bloomberg Business Sears Holdings to close 103 more stores The beleaguered retailer on Thursday said it will close 64 Kmart stores and 39 Sears stores by early April. The company has shuttered more than 400 locations in the past year, leaving it with about 875 stores. Abha Bhattarai THE REGULATORS
— SEC warns on cryptocurrency. The Hill's Sylvan Lane: "The Securities and Exchange Commission (SEC) warned investors Thursday that those firms and brokers who offer cryptocurrency investments are often breaking federal trading laws. In a joint statement, SEC Chairman Jay Clayton and commissioners Kara Stein and Michael Piwowar also said the agency faces severe challenges in recovering losses for jilted cryptocurrency investors. The SEC has reviewed cryptocurrencies that are traded as securities, holding them subject to the same disclosure laws as other commonly traded assets. The agency has blocked initial coin offerings (ICOs), sales of cryptocurrencies meant to raise capital for a business, that don’t follow federal trading laws. 'It is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws,' the SEC said in its statement."
— Citi fined $70 million. Reuters: "A U.S. bank regulator has fined Citibank $70 million for failing to address shortcomings in its anti-money laundering policies. A U.S. bank regulator has fined Citibank (C.N) $70 million for failing to address shortcomings in its anti-money laundering policies."CHART TOPPER
Attorney General Jeff Sessions faces a steep uphill battle in his war on pot, writes The Post's Christopher Ingraham:DAYBOOK
Coming UpBrookings Institution holds an event titled “Should the Fed stick with the 2 percent inflation target or rethink it?” on Jan. 8. The Peterson Institute for International Economics holds the D.C. release of this year’s Geneva Report on the World Economy, “And Yet It Moves: Inflation and the Great Recession” on Jan. 10. The Peterson Institute for International Economics and the China Finance 40 Forum host the Third Annual China Economic Forum on “The New Era of Chinese Economy and China’s Financial Opening-up” on Jan. 11. The American Enterprise Institute holds an event on “New thinking about poverty and economic mobility” on Jan. 18. THE FUNNIES
From The Post's Tom Toles:BULL SESSION
Conservatives are taking sides in the feud between President Trump and his former chief strategist Steve Bannon:
Republican incumbent David E. Yancey's name was drawn from a bowl, determining him as the winner of the recount in the Virginia legislative race:
Watch Trevor Noah talk Michael Wolff's book "Fire and Fury," on President Trump:
With the Golden Globes just days away, host Seth Meyers addresses how much of the show will focus on recent sexual allegations in Hollywood: