Stocks may have finally found the catalyst they need, if only for a brief relief rally.
Almost ten years after president Obama marked the bottom of the financial crisis, when on the day the S&P hit 666, the president gave the green light to buy stocks on March 3, 2009, saying - rather bizarrely - that "what you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it", president Trump also urged Americans to buy the dip when on Tuesday he suggested that the recent swoon in the stock market is a buying opportunity for investors.
"We have companies, the greatest in the world, and they’re doing really well," Trump told reporters at the White House on Christmas Day. "They have record kinds of numbers. So I think it’s a tremendous opportunity to buy. Really a great opportunity to buy."
Trump's invocation to BTFD came one day after the most violent Christmas Eve selloff on record, and the day when the S&P fell not only to its lowest level in 20 months, but also slumped into a bear market. For Trump, the stock market has served as a barometer on his administration, and while he was pointing out virtually every major uptick for the past two years, the recent plunge has infuriated him, leaving him mute on any market-related topic.
But a more important catalyst for a potential Wednesday rally came when Trump appeared to back off on his demands that the Fed stop hiking, which culminated with Trump reportedly seeking to fire Fed Chair Powell and speculation that if the market does not stop falling, Treasury Secretary Mnuchin may also be on the chopping block.
Alongside urging Americans to BTFD, Trump expressed confidence in the Treasury secretary and the Federal Reserve, in an attempt to calm financial markets further roiled after a recent Bloomberg report that the president had discussed firing the central bank’s chairman over raising interest rates.
Asked about Fed Chairman Jerome Powell, Trump said the central bank is “raising interest rates too fast” but he has “confidence” that the Fed will “get it pretty soon.”
Trump was also asked if he has confidence in Treasury Secretary Steven Mnuchin who sparked a market panic on Monday with his late Sunday statement in which he said he had called the CEOs of the top 6 banks to make sure bank liquidity levels are fine (prompting a frenzy of question what he knows that the rest of the market does not) and followed it up with a call with the Plunge Protection Team on Monday, which however failed to prevent one of the worst one-day routs in history .
Trump's response: "yes I do, very talented guy, very smart person."
While answering questions from reporters at the White House after addressing U.S. armed forces members on a Christmas Day video conference call, Trump also said the Fed is hiking borrowing costs because the "economy is doing so well" - which is accurate, however it is the market that is spooked by the aggressive tightening - adding that U.S. companies are having “record kinds of numbers” and it’s a “tremendous opportunity to buy.”
The remarks represented Trump’s first expression of public support for Mnuchin and Powell since Bloomberg reported last week that the president has discussed dismissing Powell who was recommended by Mnuchin. Overnight, Bloomberg also reported that the president also weighed dismissing Mnuchin, while another said that Mnuchin’s tenure may depend in part on how much markets continue to drop.
Trump’s Oval Office remarks on Tuesday contrasted with an angry tweet on Monday saying "The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders." Previously, Trump had unleashed a litany of complaints about the Fed's rate hiking pace, as summarized in the chart below, raising concerns that the Fed may lose its "independence" if Powell is seen as folding to Trump's demands or if Trump replaces the Fed chair as a result of the recent market drop.
Trump's latest remarks on the Fed may be seen as bullish by the market as they alleviate somewhat concerns that Trump would try to remove Powell, even if the president didn’t explicitly say that he won’t fire the central bank chief. Mnuchin said in a pair of tweets Saturday evening that he’d spoken with the president about the matter, and he quoted Trump saying he didn’t believe he had the authority to remove the Fed chairman.
"Well, we’ll see," Trump said Tuesday when asked about his confidence in Powell. “They’re raising interest rates too fast. That’s my opinion. But I certainly have confidence. But I think it will straighten. They’re raising interest rates too fast because they think the economy is so good. But I think that they will get it pretty soon. I really do. I mean, the fact is that the economy is doing so well that they raised interest rates and that is a form of safety in a way.”
Trump’s "safety" comment is a reference to the Fed's ability to lower rates from higher if and when the economy starts contracting, giving the economy a greater cushion in case of a downturn. This is also known as the "hiking rates now to lower them later" approach.
Incidentally, according to the Fed Funds market, as of Monday's rout, the odds for a January 2020 cut are now higher than for a hike, indicating that the market is now pricing in an easing cycle and/or a recession starting in just over one year.