Howes: Rising virus fears, slumping stocks complicate Trump re-election bid
The markets tanked again Thursday, powered by continuing fears the spreading coronavirus will disrupt the robust U.S. economy, trim its growth rate and increase anxiety in an election year.
The Dow Jones Industrial Average lost nearly 1,200 points, or 4.4%, in a single session. The S&P 500 slid by the same percentage, closing down nearly 138 points. And the tech-heavy NASDAQ shed another 4.6% to close at 8,566.
This is not 2008 — yet. That's when the global financial meltdown intensified and weakened economic fundamentals just a few months before the junior senator from Illinois, Barack Obama, won the White House and inherited the mother of all financial workouts — including the bailouts of two Detroit automakers.
This feels more like classic panic, exacerbated by predictions of zero earnings growth this year for U.S. companies, as well as mixed signals from President Donald Trump and government experts on the prospects the virus will spread in the United States. Which means the uncertainty implied by plunging markets is likely to do just what the president fears most: negatively impact his bid for re-election.
Trump has long considered the performance of the nation's stock markets a barometer for his presidency. The higher they've gone, reaching record highs in just the past few weeks, the more he's said his re-election would be assured by enough Americans contemplating the gains in their 401(k) and brokerage accounts.
Depending on how long, and how deep, the swoon lasts, Team Trump could face the inverse of that logic. Namely, that a sharp, nasty drop in those balances, and the economic reverberations it may create, could translate into blaming the incumbent and taking it out in the voting booth.
Speculative? Sure, for now. And it's roughly eight months until the general election, not two like Obama and Republican John McCain faced in September 2008. But the coronavirus, born in China and now exported to other parts of Asia, Europe, South America and the United States, is a shining example of the dictum, "You don't know what you don't know."
If Trump's rosy scenario at a rare White House press briefing this week proves remotely accurate, chances probably are pretty good that an appreciable chunk of the losses could be recouped in fairly short order (recalling, of course, that we're talking about pullbacks from all-time highs).
If the experts flanking him are more accurate, however, and the virus makes its way into pockets of the U.S. population ... in an election year ... the political costs for Trump are likely to be affected in inverse proportion to stock prices. That is, as shares lose value, the president's re-election prospects could follow.
Average investors can't put a mask on their 401(k) or diligently wash its hands. Neither can Wall Street: breaking with consensus, Goldman Sachs revised its estimate for corporate earnings growth this year to zero. It cited "severe decline" in China's economic activity in the first quarter, lower demand for products from U.S. exporters, disruption in supply chain for American companies, a slowdown in U.S. economic activity and more business uncertainty.
Efforts to contain the virus, here and abroad, raise the prospect of yet more interruptions to normal economic activity and consumer spending. That's if public health officials are compelled to close schools, organizers to cancel concerts and sporting events, would-be passengers to avoid air and train travel.
The net effect, to bolster Goldman Sachs' point, would be a vicious cycle of slowing business activity that begets lower corporate earnings and reduced demand for big-ticket items whose purchase can be deferred — such as pickups and SUVs built by Detroit's three automakers.
The political risk: that reduced demand domestically and overseas causes a slowdown in manufacturing and consumer demand that forces automakers, suppliers and other manufacturers in industrial Midwest battlegrounds like Michigan to slow production lines and perhaps order layoffs.
And it all would be unspooling as primary season gives way to a general election campaign in which the health of the American economy was considered to be Trump's strongest argument for re-election. It still may be, but right now it doesn't feel like it.
Coronavirus may prove to be Trump's "Black Swan," the unforeseen event packaged in a spiky virus that could destroy intentions and reshape the course of a presidency, the sentiments of voters and the arc of the American economy.
Safe to say this isn't what Trump envisioned paving his way to a second term. But it's what he may get — and what he'll have to manage because he's the president.
Daniel Howes’ column runs most Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN. Or listen to his Saturday podcasts at detroitnews.com or on Michigan Radio, 91.7 FM.