A Bloomberg article tells us not to thanks president Trump for the Dow Jones rise above 20,000 to a historic high. That's after saying this:
The Dow has gained about 10 percent since Trump was elected, and for good reason: His proposed policies would augment the stream of cash flowing to investors. Reduced corporate tax rates, for example, would leave more money to pass on to shareholders, while cuts in capital-gains rates would allow them to keep more for themselves. The mere possibility of such a windfall offers investors ample motivation to bid up stocks.
The policies are something that will help the Dow, but it's not a recipe for economic success relative to GDP growth the editorial argues, loath to credit president Trump with anything despite the obvious Dow success. The following several paragraphs outline why it won't necessarily translate into success for middle America. There are arguments to be made (and also refuted) because we're only a week into the new presidency and the extension of the Dow success has yet to happen - it's too early.
But that does not take away from the editorial's title: "Dow 20,000 Is No Vote of Confidence".
Wrong. That's exactly what it is. A Dow at 20,000 is not a report card on success; after one week as president that would be akin to giving president Obama a Nobel Peace Prize based on his potential to ferment global peace after 8 months in office and no concrete accomplishments tied to it. For those of you unable to catch that, I mean that it would be crazy. No, a soaring Dow indicates precisely a vote of confidence in the potential of Trump (perhaps that was the Nobel committee's misguided intention with Obama in 2009, conflating aspiration with success). Bloomberg makes the reverse mistake from the Nobel cabal here - conflating success with aspiration. The Dow is driven in large part by aspiration because trying to divine the future of stock performance depends on where you see the economy and business environment heading. This is exactly what the market is doing - it's confident that business will operate in a more business-friendly environment and therefore perform better.
Is there a vote of confidence in Trump's stated policies? Well, anecdotally it's not just the Dow's rise that indicates this is the case. Consumer confidence has soared since the election of Trump as seen below:
That sure looks like a surge of confidence to me. Maybe Bloomberg is seeing something else that I'm missing. But probably not. What they are seemingly arguing is that it's not going to translate to GDP growth and ultimately the little guy by way of jobs and purchasing power.
More money for investors, though, doesn’t automatically translate into more prosperity for everyone. Economic growth has been weak since the recession of 2007 to 2009, in part because of very low levels of capital investment. Companies would be more likely to increase this spending if Trump offered some specific enticements, or if they saw more demand for their goods and services.On those fronts, the future is less clear. Stock investors tend to be relatively wealthy and hence less likely to spend each added dollar they make, so their gains probably won’t do much for demand. Companies, for their part, are getting conflicting signals: Lower taxes would of course be attractive, but Trump’s public meddling in hiring and investment decisions might push in the other direction.
They're using a microscope to look at a macroscopic situation. Trump's 'meddling' is window dressing for public consumption. Yes it's made a difference in terms of specific jobs. But Trump understands that he cannot spend the next 8 years sitting down with every company and tell them to hire American, buy American and build American. He's merely setting a tone with that. More importantly however, is the idea that a better business climate via his policy agenda, will invite capital investment and inflows (repatriation of capital) and that will necessitate hiring and therefore jobs. Trump and a lot of others are betting on that and it looks like it's going to be a pretty safe bet.