Monday, February 5, 2018

Donald Trump's Impact On Global Stock Market Is Close To Zero

The current global sell off in the stock market has little to do with Donald Trump. Of course, the rise in global stock prices, that Trump took credit for, also had little to do with Donald Trump. He only takes credit for good news and he takes no responsibility for bad economic news.  There are many reasons why Trump has little impact on the US stock market.  In the first first place, there was a global rise in stock prices and a global sell off.  The global rise in stock prices was stimulated by a global economic recovery.  That, in turn, increases the risk of inflation.  Central banks respond to inflation risk by raising interest rates.  That has two fundamental economic effects on stock prices.  Higher interest rates raises the cost of borrowing by businesses and by consumers.  That has a dampening effect on economic activity.  It also makes investing in bonds relatively more attractive to investors.  Asset prices will always respond to fundamental economic factors and the actions taken by central banks have had a more powerful impact on asset prices than anything that Donald Trump has done.

1 comment: