For the past year the US has been essentially operating on an Obama-Yellen economy, at least as far as the big macroeconomic policies have been concerned in terms of fiscal and monetary policies. We saw basically a continuation of what had been seeing in previous years, steady growth with inflation under control. There was some uptick in wage growth, although that had already started in the previous year. He has supposedly engaged in a lot of deregulation, but most of it that has gotten a lot of attention has involved making it easier for firms to pollute in various ways, with squashing renewable energy projects while super encouraging fossil fuels and coal. Indeed, about 50% of the increase in capital investment in the US last year was in the energy sector.
One area where Trump’s policy, or expectation of it, has had a noticeable influence has been the expectation of his corporate tax cut on the stock market, ,which has risen a lot since his election, even after taking account of the declines in the past week (although the market rose more in percentage terms in Obama’s first year than it did in Trump’s first year). But, of course, stock markets are famous for buying on the rumor and selling on the news. Now the market continued to zoom after the tax cut passed for awhile, but now some realities may be kicking in regarding the full implications of it. The Obama fiscal policy is over, and Janet Yellen officially went out the door at the Fed at 9 AM this morning when her successor was sworn in as the new Fed Chair.
So why is the realization of the end of the Obama-Yellen economy downing the market so hard? One side item that has probably exacerbated things and has little to do with Trump or the rest has been the more dramatic collapse of the cryptocurrency markets, now down well over 50% from its November high. I shall not get into the details of that or where I think it is going, but I suspect the sharper plunging those markets were doing this past week have spilled over to some extent into the stock market.