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Trump is finally making investors nervous

Investors spent most of last year ignoring the president’s antics. They’re not anymore.

President Donald Trump is displayed on a television monitor as a trader works on the floor of the New York Stock Exchange ahead of the closing bell, March 8, 2018, in New York City.
President Donald Trump is displayed on a television monitor as a trader works on the floor of the New York Stock Exchange ahead of the closing bell, March 8, 2018, in New York City.
Drew Angerer/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.

If the stock market was in a Trump rally before, it’s in a Trump slump now — even if the president would rather not admit it.

Wall Street largely embraced — or, when necessary, ignored — Trump’s antics during the first year of his presidency, and the markets surged. This year started off strong as well. The benchmark S&P gained almost 6 percent during the first month of 2018, and US equities indexes hit record highs.

“The stock market never goes down anymore,” Bloomberg’s Elena Popina wrote in January.

And then, in February, it did. The Dow saw its two biggest one-day point losses ever in the span of a week, and while markets recovered somewhat after, they’ve remained choppy. All three major US equities indexes are in now in negative territory for the year. Stocks tumbled on Monday, the first day of the second quarter. It was their worst start to April since 1929.

President Trump routinely bragged about the stock market when it reached record highs. His decision to tether himself to its metrics means he has to own both its rises and its falls.

The last time Trump tweeted about the stock market was on March 26, when the Dow posted its third-best one-day point gain ever. Of the five biggest one-day gains for the Dow in its history, Trump has overseen two of them — one of about 670 points, and one 560 points. Of the Dow’s biggest five-day losses, he’s overseen three: two of more than 1,000 points, and another of 725.

He hasn’t mentioned the losses — even though he’s at least in part to blame for the market’s latest troubles.

His threats against Amazon have dragged down its stock and contributed to the tech sector’s pullback, and his slow march toward a potential trade war has investors on edge. Amazon fell by more than 5 percent as the president rattled off tweets accusing the company of tax and Post Office-related malfeasance.

China’s threats to retaliate against US tariffs fueled fears of a trade war, unnerving manufacturers and even Tyson Foods. And his confused tweets about NAFTA, immigration, and DACA deepened trade concerns further.

“Welcome to the Trump slump,” declared Politico’s Ben White on Tuesday. “Pro-business president throws his hair-curler in Wall Street’s bathtub,” wrote Vanity Fair’s Bess Levin.

What Trump’s doing that’s bad for stocks

Trump isn’t the only reason markets have been volatile in 2018. (In fact, there’s never any one identifiable explanation for why markets do what they do.) But he does have a hand in some of Wall Street’s recent troubles.

He has renewed his battle with Amazon, a proxy for his ire toward CEO Jeff Bezos, who is also the owner of the Washington Post. He has accused the company of avoiding sales taxes (even though it now largely pays them) and has said it rips off the Post Office (it doesn’t really).

According to a report from Gabriel Sherman at Vanity Fair, Trump sees himself as being at “war” with Amazon and Bezos and is considering a number of ways to strike out, including canceling Amazon’s potential multibillion-dollar contract with the Pentagon to provide cloud computing services and encouraging state attorneys general to investigate Amazon’s business practices. (The Department of Defense contract in question has not yet been awarded to any cloud services provider and is expected to be in September 2018.)

Trump fired off another tweet about Amazon on Tuesday morning.

Investors have been rattled: Amazon’s stock fell by about 5 percent on Monday.

Beyond Trump’s Amazon attacks, his actions on trade have made Wall Street nervous as well. On Monday, China imposed tariffs on an estimated $3 billion worth of US goods, including pork, fruit, and steel pipes.

The move came in retaliation to the Trump administration’s decision to implement tariffs on aluminum and steel tariffs and stirred fears of a potential trade war. More US tariffs against China are likely to come this week.

Trump also continues to lash out on NAFTA, which he has repeatedly threatened to pull out of or scrap.

The trade actions seem to be undoing any juice the stock market got from the Republican Congress’s tax cuts. “When I think of U.S. policy, what tax cuts have given, protectionism is taking away,” Eric Lascelles, chief economist at RBC Global Asset Management, told Politico. “The question is just how much is taken away on the protectionist side. Taking away NAFTA would be a 0.4 percent hit to GDP. And $100 billion a year forever is hardly something worth laughing at. These are very real consequences.”

Investors spent most of last year ignoring Trump’s bad behavior. They’re not anymore.

One possible change in recent months is that many of the aides and advisers believed to have helped keep the president in check — Gary Cohn, Hope Hicks, Dina Powell, H.R. McMaster — have exited the administration. Other figures who enable some of his more extreme tendencies — Peter Navarro, Larry Kudlow, John Bolton — are increasingly in Trump’s orbit. The president reportedly feels liberated to act on his impulses.

It’s not as though Trump has ever been a particularly restrained figure. He has made threats against Amazon, China, and NAFTA since before his inauguration, and his Twitter habit has been a sustained fixture of his presidency.

“A lot of what he’s doing was certainly pretty widely telegraphed during the campaign, so I think it’s probably President Trump following through on candidate Trump’s initiatives, and I think that we’ll see how far this goes,” said Jack Ablin, chief investment officer of Cresset Wealth Advisors.

So what’s changed now to make the markets react to him? Jim Paulsen, chief investment strategist at the Leuthold Group, told me it’s not so much that Trump is different but that the circumstances on Wall Street are. Trump isn’t the underlying cause of market turmoil but instead the straw that breaks the camel’s back.

“My feeling is that really since the latter part of last year, a number of challenges have raised up for the stock market,” Paulsen said, noting that stock valuations are higher, interest rates are rising, the labor market is tightening, and it appears inflation could finally be on the horizon.

At the start of the year, the stock market got particularly hot, with a concentrated run in popular tech names and retail investors with a fear of missing out. “There were a lot of challenges that made the market very vulnerable.”

So when the market began to show signs of nerves in February, everything started to affect it more — including the president’s behavior. “The news that people say is responsible [for the stock market’s moves], to me that news was there a year ago, or some variety pretty close,” Paulsen said. “It just has more impact now because of the vulnerabilities.”

He could have a point. When on June 28, 2017, Trump tweeted about Amazon not paying taxes, the stock ended the day up by about 1.4 percent.

Whereas Trump had the tax cut carrot to hold out in front of Wall Street in 2017, the bill has passed now. S&P 500 companies are expected to have seen a 17 percent boost in first-quarter profits, but the stock market largely paid itself for that earnings boost ahead of time.

The president has been eager to take credit for the stock market’s rise and tout Wall Street’s performance when things are going well — but when it’s moving in the opposite direction, not so much. The problem, of course, is that he can’t take credit only for the good and ignore the bad, even though he would like to try.

Still, there is a case for some cautious optimism that, should things on Wall Street go too awry in reaction to the president’s actions, he might scale back. “I think one of the things President Trump does is look at the stock market as a barometer of his success,” Ablin said. “So we’ll have to see how far he will go to push these measures through.”