More Evidence That Wall Street Fears the Candidate Who Wants to Cut Its Taxes

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Nobody’s expecting a return of the Crash of 1929, but the reaction of markets to a Trump victory could get ugly.Photo: Bettmann/Getty Images

We have heard credible warnings for a while now that the election of Donald J. Trump — or even the proximate possibility of said development — could roil financial markets in a nontrivial and even destructive manner. As Michelle Celarier observed last week: “[A] Trump presidency is the very definition of what markets hate: uncertainty.”

But now comes University of Michigan economist Justin Wolfers with a more specific alarm: The behavior of markets during Monday’s presidential-candidate debate shows Trump’s election could touch off a stock sell-off and maybe a recession.

During the debate, the overnight futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, and because it was driven by the reduced chance of a Trump presidency, it reveals that the market believes that stocks would be worth more if he were to lose the election. 

Calculating from various market signals that emerged during the debate, Wolfers finds that a Trump victory on November 8 would lower stock prices 10 to 12 percent, reflecting the belief among traders that corporate profitability would take a hit.

If that’s true, there are really only two basic ways to interpret Wall Street fears of a Trump presidency. The right-wing populist might say it’s a rational response to the possible defeat of Wall Street’s puppet, Hillary Clinton, and the advent of a great champion of the Little People against The Man. From that perspective, it is like the stock-market plunge late in the presidential cycle of 1988 caused by rumors that the “story” of alleged extramarital affairs involving Poppy Bush was about to break, endangering the election of that favorite of the business community. In those pre-internet days, market jitters subsided when the “story” did not appear.

The other possible explanation, of course, is that Trump’s economic plans, such as they are, don’t make any sense to the people who have to make or lose real money based on the economy’s present and future performance. What makes that scary is that Trump is offering Wall Street a massive bribe to think positively about Trumponomics:

This is all the more remarkable because it occurs despite Mr. Trump’s having promised an enormous profit-raising corporate tax cut. Either the markets don’t believe he’ll deliver on these tax cuts, or they believe that the rest of his economic program will do enough harm to more than offset the benefits of lower taxes.

Add in the fact that having a Republican in the White House would immensely improve the odds of a more general tax cut and the whole Paul Ryan budget being enacted, with the added bonus of a more business-friendly U.S. Supreme Court, and Wall Street fears of Trump become even more alarming. These birds must really think Trump’s other economic positions are a rolling ball of madness.

The crazy thing, of course, is that any anticipatory stock-market plunge could — if only at the margins — help Trump get elected, since bad economic developments are generally blamed by voters on the incumbent party, no matter what.