Falling Out of Love With Donald Trump on Wall Street

White House dysfunction has cooled Wall Street’s bromance with the president, and the odds are not good that it will be rekindled anytime soon

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President Donald Trump gives a thumbs-up on the South Lawn of the White House, April 18, 2017.
President Donald Trump gives a thumbs-up on the South Lawn of the White House, April 18, 2017.Credit: Carolyn Kaster/AP
David Rosenberg
David Rosenberg

Wall Street seems to have fallen out of love with Donald Trump.

The index tracking the biggest companies of all, the S&P 500, powered 12% higher between Election Day and the start of March, on the assumption that Trump would cut taxes, slash regulations and spend billions on infrastructure. It has since fallen 2.4%, based on new conventional wisdom adopted since the White House and Congress failed to agree on a replacement for Obamacare, that the administration is incompetent and its agenda is in jeopardy.

All right, maybe Wall Street hasn’t quite fallen out of love, but the romance has certainly cooled. And it’s unlikely to be rekindled unless Trump starts performing, because the underlying facts are frightening for investors: U.S. economic growth is sluggish, the Fed is hiking interest rates, and stocks are trading at very high multiples that already factor in future gains from tax cuts and an infrastructure spending windfall.

In that vein, here are five questions we should be asking:

Why has Trump been such a disappointment?

The conventional wisdom regarding negative sentiment about Trump is irresistibly moored to the Democratic-Republican division, when in fact the real divide in Washington these days is between the establishment and the disrupters.

Even though he ran on the GOP ticket, Trump arrived in Washington as a self-proclaimed disrupter – someone who was going to shake up Washington. Many of his hires were in that camp, too, most notably Stephen Bannon, Sean Spicer, Steven Miller and Michael Flynn, as well as the people he put in charge of the Office of Management and Budget, the Environmental Protection Agency and Department of Education.

They have tried to ride roughshod over the Washington establishment, Republican and Democrat alike, and so far they have failed. No surprise there: You can’t get anything done on Washington without the minions of bureaucrats, generals, lawmakers, lobbyists and the media behind you.

Is the Trump administration in chaos?

It certainly was. Trump marketed himself as a disrupter, but he is an empty vessel with few ideas, weak leadership skills and no ideological commitments. He owes the disrupters nothing because he’s not one of them and slowly, he’s letting the establishment types take control.

At the top, it looks like Jared Kushner and his allies have pushed Bannon aside. My guess is within a few months, a lot of the other disrupters will have followed Flynn into exile.

Whether the palace coup will make the Trump administration more effective is another matter.

Kushner and Ivanka Trump may have more establishment views and they’re not out to break furniture, but they are Washington neophytes. The ham-fisted handling of Syria’s chemicals weapons attack (a policy about-face in the space of a few days with no follow-up) or North Korea (announcing the deployment of an aircraft carrier to the peninsula when in fact it was headed in the opposite direction) can only make you wonder about who’s in charge, if anyone.

The real hope is that core establishment figures like Gary Cohen, Trump’s top economic adviser, and Herbert R. McMaster, his security adviser, emerge as real White House powers.

So, if the White House is getting its act together, does that mean legislation will get on track?

Not necessarily. Congress, too, is divided between establishment figures and disrupters, as the fight over repealing Obamacare demonstrated: The Republicans couldn’t muster a majority in their own party for a cause they were supposedly all in agreement on.

The same pattern is likely to be followed with tax reform, rewriting the Dodd-Frank banking reforms and spending on infrastructure. Next week may bring the threat of government shutdown when federal funding runs out on April 28.

There is a hardcore bloc of GOP disrupters in Congress and, together with the Democrats, they constitute an effective barrier to Wall Street and Trump’s favorite ideas. Trump may find himself limited to issuing executive orders and sponsoring incremental legislation, but nothing like the big shakeup he promised.

Is that good for Wall Street?

Yes and no. On the one hand, stock markets like certainty, and the chaos the White House demonstrated in its early weeks showed none of that. Fooled like many others by the Trump image of dealmaker par excellence, the market chose to ignore the administration’s dysfunctional behavior until the Obamacare fiasco showed the president’s true colors.

Now, with the establishment appearing to be taking control of the Trump White House, the uncertainty factor is receding. But the ability of the president to pursue the most ambitious parts of his agenda – the ones the stock market was counting on to justify sky-high valuations – remains poor. All other things being equal, the market has nowhere to go but down.

And what about the rest of us?

I’m reminded of the story about a Wall Street shoeshine boy who cheered the comeuppance his insufferable customers received when the stock market crashed in 1929. A few months later, as the Great Depression set in, he was out of a job, too.

It’s obvious that what’s good for Wall Street isn’t necessarily good for the other 99%. On the other hand, when the markets suffer, ordinary people don’t  automatically benefit either. We can celebrate the failure to roll back Obamacare, but there’s no reason to look on gleefully at legislative gridlock or a feckless White House and hope that in four years' time, everything will turn out better.

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