Missing the Boat on the Big Political News
August 26, 2015 · 9:00 AM EDT
On Aug. 21, I did something — twice — that I rarely do. I tweeted. But it wasn’t about Donald Trump’s poll numbers or Hillary Rodham Clinton’s emails. It was about the stock market’s plunge.
While Trump’s latest salvo (no matter the subject) is always entertaining and the size of Bernard Sanders’ most recent crowd is worth noting, Wall Street’s current performance and the investment community’s nervousness could turn out to be more important for the two parties next year.
Last Friday, the Dow closed just under 16,460, almost 1,900 points below its May high ‚ and a drop of slightly more than 10 percent from its peak. On Monday, it opened down 1,000 points before it “recovered” so that it was down “only” a few hundred points.
Some investors surely are worried the Federal Reserve will soon hike interest rates for the first time in years, but most of the nervousness seems to stem from worry about China’s slowing economy and general weakness in emerging markets.
While economists currently are showing no great concern about the health of the U.S. economy, weakening demand around the world for American goods (which follows from the strength of the dollar), surely raises questions about the U.S. economy, where growth over the past few years has been well short of robust.
Of course, Wall Street’s selloff may have nothing to do with the economy’s fundamentals. It may merely be a “correction” after years of a bull market, spurred on by everything from a dip in ESPN subscribers (which damaged high-flying Disney stock) and the continued plummeting of the price of oil, to nervousness about China’s economy. As anyone who follows stocks knows, trying to predict where the stock market will be a year from now is a fool’s errand.
But it’s also true that the last round of corporate earnings reports and the accompanying guidance for the rest of the year creates some concerns about the future.
Why does any of this matter? It matters because the economy will constitute a crucial backdrop for the 2016 elections. Clinton’s email problems are serious, but a weakening economy a year from now would be an even bigger problem for the former senator from New York and the still likely Democratic nominee. (Vice President Joseph R. Biden Jr. would have the same problem, of course, should he enter the Democratic race.)
As Republican John McCain found out in 2008, the presidential nominee of the same party as an unpopular outgoing president can shout until he (or she) is blue in the face that he (or she) isn’t responsible for the state of the nation or would do things differently in the future, but voters always look for someone to blame, and more often than not, that person is the incumbent president — and others from his party.
So while you enjoy the circus that is Trump, speculation about Biden, hand-wringing about Jeb Bush and the chatter about Clinton’s emails, take a few moments throughout the week to check the stock market, watch the dollar, eyeball the price of oil and look to see whether the yield curve is flattening.
Politics, after all, is connected at the hip to the economy and to consumer confidence.