The stock market took a break from reality this week.
Stocks have performed terribly in December, with the S&P 500 index down nearly 6% in just five trading sessions. The wild ride began with a rally on Dec. 3, as investors seemed cheered by the outcome of a trade meeting between President Trump and President Xi of China .
But the mood rapidly soured as conflicting follow-up statements came from the U.S. and the Chinese side, and even from different people on the U.S. side. It didn’t help that a wonky technical indicator suggested a recession might be coming , at some unspecified time, maybe, or perhaps maybe not. Oil prices yo-yoed as well, as the OPEC oil cartel dithered over whether to cut production but finally said it would, sending oil prices up .
That’s what governed the stock market this week. In the real economy, the government reported that employers created 155,000 new jobs in November, which is fewer than economists had projected but still a perfectly fine pace of job growth. The unemployment rate remains a super-low 3.7% and wages are heading up. Economically, that’s good news.
We’re siding with the real economy over the stock market this week, with the Trump-o-meter reading MEDIOCRE, our third-highest mark.
If the Trump-o-meter were just measuring developments on trade, the reading would be much worse. Initial developments seemed encouraging, with both sides agreeing to suspend the implementation of tariffs or any other punitive measures for 90 days, while they negotiated an agreement. So far, so good.
But then Trump called himself Tariff Man in a tweet , and everything deteriorated. Trump administration officials gave one version of the tentative agreement, while China gave another. Team Trump said China would rescind new tariffs on imported U.S. cars, and start buying more American farm products immediately. But China didn’t say that at all, and only hinted that both sides had agreed to find a way to resolve the trade dispute.
Larry Kudlow, chair of the White House National Economic Council, told reporters the 90-day “truce” would begin on Jan. 1, therefore lasting till April 1. But the White House recanted and said a short while later that the 90-day period began on Dec. 1, with the new deadline being March 1. Okaaaaay, then. If there’s no agreement by March 1, Trump can pull out his tariff gun and start blasting away again.
Then Kudlow seemed to spar with another White House economist, Peter Navarro, who favors a much harder line with China than Kudlow does. In dueling TV appearances, Kudlow said Trump might extend the 90-day period, if necessary, while Navarro said nope, that won’t happen. Good to know! Markets sold off right around the time Navarro contradicted Kudlow. Apparently the White House hasn’t heard that markets hate uncertainty.
At some point, there will have to be one U.S. policy toward China, and one definitive outcome—even if the outcome is an indefinite trade war. Kevin Hassett, a third White House economist, who chairs the Council of Economic Advisers, told Yahoo Finance on Dec. 7 that trade worries now depressing stocks will eventually yield to optimism that will lift stocks.
“As we make progress on trade, that’s going to be really good for markets,” Hassett said. “There should be a lot of market expectation that things that are detracting value from U.S. equities, those practices should stop.”
Luckily for Trump, employers are still carrying on with business as usual, which means they’re hiring. And if job growth moderates from the pace of the last few years, as seems to be happening, that would allow the Federal Reserve to ease off a bit as it raises interest rates. All of that should be good for stocks later on, because the real economy normally calls the shots.
- Trump shows the perils of a businessman-president
- A recession is coming–but this isn’t it
- Trump’s trade war will drift into 2019
- Trump’s Russia connections are getting clearer
- Trump has the GM problem backward
- Trump’s tax-cut party is officially over
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman