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Bottom line

from David Ruccio

The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street.

As CNN-Money notes,

One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.

Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.

What’s going on?

fredgraph (1)

What investors actually hate is not uncertainty but, rather, threats to profits. And corporate profits have been growing spectacularly during the recovery from the Second Great Depression. Between the fourth quarter of 2008 and the first quarter of 2017, corporate profits rose more than 150 percent. Meanwhile, U.S. stocks (as measured by the Standard & Poor’s 500) increased by more than 200 percent. The rise in stock prices stems both from the growth in corporate profits and from gains in the stock market itself, which together have fueled further increases in the stock market with steadily declining levels of volatility.

As Ruchir Sharma admits,

Mr. Trump’s mercurial ways may be a source of great concern or indifference, depending on your ideological leanings. But Wall Street doesn’t seem to care one way or other.

What Wall Street cares about is not uncertainty but profits.

That’s the bottom line.

  1. Risk Analyst
    May 31, 2017 at 9:47 pm

    My interpretation is a bit different. I would say that Wall Street has discounted much of the “news” from sources such as CNN and the NY Times as fake news and not worth trading on. Go to CNN and listen to them drone on about the crisis and chaos in the White House, compare it to what you see out your window, and you know its just dramatic baloney meant to increase advertising revenue and promote their own political agenda. As to the decrease in market volatility, I have as a possible later project looking into evolution of the “trading” of volatility as an actual asset class (eg. VIX) to see if that market damped volatility in the same way that Davidson wrote about futures trading in commodities impacting spot prices. The idea is not even half baked yet so I cant’ yet defend it. Too many projects. Still can’t believe the focus on bitterness over the last presidential campaign here when there is so much to do in economics.

  2. Helge Nome
    June 1, 2017 at 4:06 am

    The reason for the stability is that both the Obama and Trump administrations are puppets of the financial cabal, as Hillary Clinton’s administration would have been as well.
    The cabal sees no threat to itself at this time. Let the good times roll!!

  3. originalsandwichman
    June 1, 2017 at 5:04 am

    Greater fool theory at work.

  4. June 1, 2017 at 9:45 am

    I worked in DC for 9 years. Still have friends there. They tell me this is the worst they’ve seen since at least 1980. It’s their view Trump likes disrupting things, for pleasure and profit. Except for his friends. And he has only two friends in DC. The dyed-in-the-wool Trump supporters who handed him the Presidency. And Wall Street. He’ll try not to offend either, but especially not Wall Street. You don’t think Wall Street knows this? He’s Wall Street’s man body and soul. Many agree with House Majority Leader Kevin McCarthy’s claim in June 2016 that Trump is on Putin’s payroll. I don’t have evidence on this claim. But I do know that Trump has long-standing business dealings with Russia and has received hundreds of millions of dollars from Russian oligarchs.

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