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Trump’s agenda is fueling investor confidence. Will it last?

The Dow Jones and other indexes were already doing well when Donald Trump won the presidential election. And the overall jump of recent weeks has accelerated mightily, rising from just above 18,000 on election day to breaking 21,000 this week. For analysis of what’s happening with the markets, William Brangham speaks with Neil Irwin of The New York Times.

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    Now let's turn to the markets and the remarkable rally of late, one that's led to new records since President Trump was elected.

    William Brangham has the story.


    The Dow Jones and other indexes were already doing well when Donald Trump won the presidential election. In fact, from the lows of the 2008 financial crisis through President Obama's time in office, the Dow climbed back by about 150 percent.

    And while markets closed lower today, the overall jump of recent weeks has accelerated mightily, rising from just over 18000 on Election Day to breaking 21000 this week. In fact, it jumped by 1,000 points in just 24 days. That's the quickest rise since 1999.

    For some analysis of what's happening, I'm joined now by Neil Irwin. He's an economics writer for The New York Times.


  • NEIL IRWIN, The New York Times:



    Pretty amazing market out there right now. Can you explain? What is going on?


    So, the simplest version is, Donald Trump is president. His agenda is to cut corporate taxes. His agenda is to deregulate. These are things that are good for the bottom line for major companies.

    Throw in some more military spending, maybe some infrastructure spending, that's good for the bottom line for corporate America. Add in also, this is a global economy the is kind of getting on its feet after a rough couple of years, rough patch.

    And you combine those things into one period of a few months, and that's how you get these kinds of rallies that we have seen.


    As you say, Donald Trump certainly would like to take credit and has taken credit for this. Does he deserve credit for this?


    Yes, there is no question that the Trump agenda is something that's making stock investors confident, that's leading them to believe that after-tax profits, which is what matters if you're a stock investor, are going to be on the rise in the years ahead.

    Some of the math is pretty simple. If you're a bank and you can — your capital requirements gets dropped, if you're a military contractor and your military spending gets increased, that is going to go straight to your bottom line. Lower taxes, good for the bottom line. That's all good for stocks.

    So, there's no question that's part of the Trump agenda. Now, that said, most of those policies haven't actually happened yet. So there is still the question of, will the Trump administration deliver the things that Wall Street is now expecting?


    It's an anticipatory effect.




    You wrote recently that the real question is, how much slack is there in the economy? What do you mean by slack, and why is that important?


    Every economy, every country has some kind of economic speed limit. There's only so many people. They can only produce so much stuff.

    The question for the economy is how close we are to that speed limit in the United States. How low can the unemployment rate go? How many more — how much unused capacity is there in the manufacturing sector?

    And that's the big question going forward. Is there room for the economy to grow 3 percent or 4 percent, like Donald Trump said he wanted to see during the campaign? Or are we pretty much as fast as we can — are we growing as fast as we can, something like 2 percent?

    And that's the big question of whether this kind of outstanding growth that is being priced into financial markets really can be delivered in the years ahead.


    Do you know the answer to that question? If you had to guess, where are we?


    We're getting close.

    Look, we're at under 5 percent unemployment. Now, there's a lot of people outside the labor market who might come back in. So there is some slack out there. There is some room to grow, but probably not as much as there was a year or two ago. And that will become the binding constraint in these next couple of years.


    A booming market is certainly great if you're in that market, but not all sectors are booming equally.

    How does this booming market translate, though, for people — does it add to growth that makes a real impact in people's lives?


    Look, stock wealth is held predominantly by the affluent, so the distributional effects of a higher stock market are definitely not even across the population.

    That said, to the degree that a higher stock market, a rising sense of confidence in corporate America leads to more hiring, more capital expenditures, that can have broad impacts.

    So, there is reason — if these numbers hold up, if what markets are pricing in, in the Trump administration actually happens, that's a good sign for growth, for job growth, for expansion of all kinds of businesses.


    Given this economy and what you know of Trump's proposed policies, what specifically about those policies are you looking most closely at?


    I think it's execution.

    Is this big corporate income tax cut that the president says he wants to see, is that really going to happen? How soon will it happen? How big will it be?

    On the regulatory front, how much of the shift away from regulation really will be things that benefit corporate America? How much — is there going to be new infrastructure spending? He wants a trillion dollars. Is that actually going to happen? Congress isn't so sure.

    So seeing if some of these things go from an idea on a chalkboard to actual legislation, actual policy, that's the big question right now.


    I know you're an analyst and an economics writer, and you don't buy and sell stocks, but if you had to be advising me, do you think this rally is going to continue? Can it keep up like this?


    Look, stocks are priced for protection right now. They're very — they're highly priced relative to earnings. It's all prospective.

    So, you're not buying current earnings. You're buying the future. And the future is as uncertain as it's ever been. That said, is there plenty of reason to think that earnings could grow as the market is now predicting? Certainly. To count on it, think it's assured makes it a bit of a risky bet.


    All right, Neil Irwin of The New York Times, thank you very much.


    Thank you.

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