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How Wall Street learned to stop worrying and love Trump

“The markets have pretty much put on blinders.”

Traders at the New York Stock Exchange as Trump delivers a televised address. Bryan Smith/Getty Images
Emily Stewart covers business and economics for Vox and writes the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

President Donald Trump has had an erratic start to 2018 — he’s threatened nuclear war on Twitter, seen growing questions about his mental stability, and stirred controversy in disparaging immigrants from what he reportedly deems “shithole countries.”

Despite the uncertainty emanating from the White House, Wall Street is off to its best start in years: the benchmark S&P 500 index is already up about 4 percent in 2018. If such a steep upward trend were to continue (which it likely won’t), the index would end the year up by roughly 160 percent.

The conventional wisdom says markets should be wary of an unstable political situation such as that posed by Trump. But they don’t seem too worried.

Before Trump’s election, economists warned that his victory could herald a major stock market correction and global recession, but neither event has materialized. Instead, US stocks hit new highs in 2017 and continue to climb, the economy is humming along just fine, US household income is up for the second straight year, and unemployment is at record lows.

Even Trump’s January 2 tweet threatening North Korean leader Kim Jong Un that he has a “bigger” and “more powerful” nuclear button on his desk (there is no button) garnered nothing more than a shrug from global markets.

Investors appear to be embracing the upsides of Trump’s presidency — the tax bill, promises of deregulation, a professed pro-business attitude — and ignoring the potential downsides and risks.

“The markets have become desensitized to anything that’s negative,” said Kristina Hooper, global markets strategist at investment management firm Invesco. “The tweets, all the behaviors that have been called into question over the last year among legislators, citizens, etc. I think the markets have pretty much put on blinders.”

The markets’ rise is certainly good news for investors — but eventually, the fun will likely end.

Investors are broadly over the Trump tweets

Trump has made a habit of singling out specific companies on Twitter — he’s gone after Boeing, General Motors, and Lockheed Martin and has on several occasions targeted the New York Times and Amazon, among others. Initially, companies’ share prices tended to drop pretty significantly when Trump targeted them. That’s not happening much anymore, and even when it does, the Trump-induced downturn doesn’t last.

Last year, before his inauguration, Trump tweeted that General Motors would “pay big border tax” if it started manufacturing cars in Mexico. The company saw its stock price climb by 0.89 percent that day after the morning threat. Its share price has gained more than 25 percent since then.

Amazon, one of the president’s top Twitter targets, has done well, too. His December 29 tweet accusing the e-commerce giant of taking advantage of the US Post Office appears to have sent its stock price down slightly — Amazon’s shares fell 1.40 percent that day — but overall, company investors are fine. Its share price has climbed about 13 percent since then and has had only one day in the red in 2018 so far.

Investors appear to have concluded that Trump’s tweets don’t mean much — and, according to Bruce Bittles, chief investment strategist at financial services company Robert W. Baird, rightly so.

“Anyone that’s paying attention to tweets if you’re an investor is making a big mistake,” he said. “Those subjects don’t have much to do with the stock market.”

Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management and columnist at Bloomberg View, said in a recent column that the companies Trump has criticized have, in general, done better than those that he’s favored.

Ritholtz has devised two indexes — the “Oligarch Index” that contains what he deems Trump-friendly companies, such as Colony Capital, CoreCivic, ExxonMobil, and Goldman Sachs — and the “Drain the Swamp Index,” which includes the New York Times, GM, Time Warner, and Amazon, among others. (His categorization of companies is a bit opaque — he has Carrier-owner United Technologies and Facebook in the pro-Trump category and Twitter in the anti-Trump one, for example.)

By Ritholtz’s measure, his Trump-friendly index has gained 19.5 percent over the past year, which is good but still lags behind the S&P 500. The Trump-antagonist index, on the other hand, has climbed 42.5 percent. “The world’s most powerful man seems to have lost his market-moving mojo,” Ritholtz wrote.

Investors appear to have decided Trump’s one-off tweets don’t much matter in the grand scheme of things. “Much of the negative stuff has very little material impact on fundamentals, so it makes sense that we have less focus on that,” Hooper said.

FOMO, but for Wall Street

There’s no one explanation for why Wall Street seems to be on such a sustained high —or if and when investors will come back down.

“The stock market never goes down anymore,” Bloomberg’s Elena Popina wrote on Friday in a piece on the market’s recent run.

The numbers she presented are pretty staggering. Globally, stock funds saw $24 billion in inflows last week through Thursday, the sixth-largest weekly total ever. The S&P 500 is trading at its most expensive level since 2002. If the market were to continue the same pace it’s been at so far in 2018, it would reach the level analysts have predicted it will reach by the end of the year within the next two weeks.

“For now, fear of missing out is prompting investors who’ve stayed on the sidelines to jump in, as people say, ‘we missed the rally last year, we’re not going to miss on it again,’” Walter Todd, chief investment officer at advisory firm Greenwood Capital, told Bloomberg.

Corporate earnings could justify stock prices, but there are other, scarier scenarios. Buzz on Wall Street has been building about a potential market “melt-up.” The phrase signals the appearance of a stampede of investors from excitement and fear of missing out — not because economics or earnings merit it.

(Sure, the tax bill should broadly be good for corporate America, but the effects of a tax cut aren’t an overnight thing. Quarterly bank earnings, for example, are expected to take a major hit because of the tax bill.)

Investors appear poised to stay optimistic and keep piling in for now, but at some point, the market has got to slow down — and there are plenty of potential risks out there, political and otherwise.

Invesco’s Hooper pointed to Trump’s trade stance as one potential risk for the year ahead. Varying reports have emerged on what he might do with the North American Free Trade Agreement (NAFTA) — Reuters reported last week that Canada is increasingly convinced Trump will try to pull out of the deal, while Axios reported he might be softening his stance. Beyond North America, protectionism, for markets and the global economy, is broadly bad.

“So much of the administration’s policies won’t really have an impact on fundamentals, but protectionism could very well have an impact,” Hooper said. “When we get out of trade agreements, when we enact tariffs, that creates or can create trade wars, which is ultimately a negative thing for economists and creates headwinds for economic growth.”

For the time being, investors appear content to overlook any possible downsides and focus on how much fun they’re having right now.