Well that was exciting.
After stocks had their worst day of the year on Wednesday, markets will on Thursday get the week’s biggest earnings report — quarterly results from retailer Walmart (WMT). Also on the earnings front will be results from salesforce.com (CRM) and retailer The Gap (GPS), among others.
On the economic data side, Thursday will be slower with the weekly report on initial jobless claims getting top billing.
But the big story in markets will be if we see a bounce-back after an across-the-board drubbing taken by the U.S. stock market.
When all was said and done the Dow fell 372 points, the S&P 500 lost 43 points, and the Nasdaq fell 158. Each of these moves was greater than 1.7% with the tech-heavy Nasdaq losing 2.5%. As stocks fell, the price of gold rallied, gaining 1.8% on Wednesday, while the 10-year yield fell to 2.21%. Treasury prices rally as yields fall.
The stock market proves endlessly compelling because the numbers always tell a story.
It’s just that the story might not make any sense.
On Wednesday, stocks sold off after President Donald Trump endured the second damaging leak in as many days following a New York Times report that said the president asked former FBI director James Comey to end an inquiry into ties former national security advisor Michael Flynn had to Russia.
And while this is not Trump’s first negative story in the press since taking office, and not the first that had some commentators going so far as to bring up things like Watergate, it was the first time since election night we’d seen a big sell-off on news related to the president.
As Charlie Bilello, director of research at Pension Partners, noted on Wednesday, this was just the second 1% down day for the S&P 500 in 2017, putting us on pace for one of the least-volatile years in the stock market since the 1960s.
What’s notable, then, about Wednesday’s stock market move is not so much the magnitude of the move but that it happened at all. Stocks reacting to “things happening in Washington, D.C.” is a change in character for the market.
In a note to clients on Wednesday afternoon, Ian Shepherdson at Pantheon Macro said, “The turmoil in Washington has begun to hit markets. We don’t know how this will end, but we do know that it isn’t going away quickly.”
But it’s not clear that this must be the case.
We’ve written in the past that those warning Trump would rock stock markets were already wrong, and that stocks selling off would not make them right. After one day of markets finishing lower, we’d argue this still holds.
As Bloomberg editor Joe Weisenthal said on Twitter on Wednesday, “Investors lose faith in Trump agenda after stocks go down.”
And while it’s long been tempting, and remains so, to argue that uncertainty in Washington, D.C. must necessarily create uncertainty in markets that allegedly hate uncertainty, these are really just cliches all the way down.
The “Trump trades” that were betting on action being taken on tax reform and infrastructure spending have already rolled over. The market’s “faith” in the Trump administration, at this point, reflects not much beyond, well, faith.
The economy appears on steady footing, even if overall economic growth is disappointing, and the labor market remains strong. When we looked back at what the market did during Watergate we found there was a 50% drop in the S&P 500. But this drop was the outgrowth of a gas crisis, and a recession, and rising unemployment, and sky-high inflation.
Markets, ultimately, react to economic growth and to corporate earnings. As Warren Buffett wrote during the financial crisis: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
And while this might be a too-rosy view of the American project for some — particularly as the country grows increasingly divided — the stock market is simply not going to reverse course because of a series of politically damaging leaks about the president.
No matter how good that story is.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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