We, as Americans, are strapped in for an exciting four years.  No one knows what exactly will come of Trump’s presidency, but if he’s made one thing clear it’s that he doesn’t plan on taking a back seat.  Especially as it pertains to the economy, Trump has many Americans optimistic and even excited at the thought of a growing economy with a rising, healthy stock market.  Trump has convinced the people that he is a titan of business, and his confidence has rubbed off on the American people.  Despite his embarrassingly low approval rating, 40% of Americans said they have a lot of confidence in Trump to deal with the economy, which was more than Obama (Washington Post).  The fact that he can disapproved by so many and still give people confidence in the economy really says a lot about how he is perceived by the people.  We are ready for our financial savior to get us back on track, but what could happen if he falls short of our expectations?  Stocks are up and up since the election, but is it because of Trump or just the idea of Trump?  People don’t think the stock market will rise, they expect it to.  Stocks are going up despite there being no actual economic growth.  The anticipation of Trump in office is causing inflation and overpricing of these stocks which can render them expensive and valueless.  From there, all it takes is a slip up or some negative news to send the market into a panic, everyone just trying to get a fraction of what they paid for their shares.  Trump’s formidable influence on business and the economy could send the stock market spiraling downward.  Trump’s name alone is enough to stimulate our stock market, but if he doesn’t cook up some real economic growth to accompany the rising stock prices, we could be in trouble. 

For obvious reasons, few people outwardly believe Trump will cause a stock market setback.  Business is Trump’s strong suit.  Plus, he’s got a plan!  Of those who don’t think Trump will damage the stock market, I’ve found that most are included in one of two groups.  There are those who believe he has a solution for growth and stabilization, and there are those who don’t think, and just assume that there’s smooth sailing ahead with Captain Trump.  A lot of praise for Trump is rooted in misunderstanding.  A common misconception is that the stock market is simply an indicator of how well the economy is doing.  Between the election and the inauguration, the market went up 6% (New York Post).  This amazing spike (though it was not Trump’s doing) sparked pro-Trump articles and posts praising the president who sat back and watched as the market went up on its own.  Many people who are under the assumption that nothing will go wrong under Trump tend to also assume that because the market is going up at the moment, it will continue that way until the end of time.  This kind of thinking is why people who are uninformed or misinformed are likely to take the side of Trump having a positive impact on the stock market.  This being said, there are still many very good reasons to believe Trump will work out our stock market.  He actually has a plan for just that.  Trump says that by offering tax cuts to large companies, he can bring money from overseas to help the working man.  $2.5 

trillion is currently held by companies overseas.  This is about 14% of the US economy that the government does not collect taxes on.  These companies will be willing to bring that money back to the states with Trump’s special offer: 10% instead of 35% on taxes.  Trump said in his first debate, “The wealthy are going to create tremendous jobs. They’re going to expand their companies. They’re going to bring $2.5 trillion back from overseas, … to be put to use on the inner cities and lots of other things, and it would be beautiful.” (Forbes)  Trump’s idea is a good one.  Companies are able to evade taxes by moving money around, and putting a stop to it will no doubt raise a lot more tax money.  In addition, Trump is hopeful that these companies will take the tax cuts as an opportunity to hire more American workers and expand their companies.  Doug Holtz-Eakin, a prominent economist who advises multinationals, explained in 2013 that they’d “Invest, expand payrolls and create jobs. … A temporary tax holiday on foreign earnings could add up to $440 billion to the U.S. gross domestic product and create up to 3.5 million jobs.”  There is no doubt that a company like Cisco, with $58 billion overseas, could stand to reap great benefit from the plan.  CEO at the time John Chambers claimed in 2010 that profit repatriation “could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses.” (The Intercept)  If what Chambers says is true, and other companies follow in Cisco’s footsteps, Trump’s plan could definitely send us in the right direction in terms of keeping our stock prices from soaring past their real value.

Trump is a very business oriented president.  He ran a business oriented campaign, he appointed a business-heavy cabinet, and of course he plans on changing the way we do business in America over the next four years.  It’s easy to see how so many people can get excited for his presidency: If he keeps his promises our economy will be stronger than ever.  He has the experience, the connections, and the reputation to make big things happen in the business world.  Current stock prices are rising, and while this has little to do with Trump, they give people confidence in Trump.  Since he’s been in office, stocks have been up.  It’s that simple.  Everything is going smoothly for Trump: the comeback election win, the record stock prices, the beginning of the wall construction- it is hard not to jump on the Trump train.  It is easy to understand why the thought of a stock market crash sounds ridiculous to some people who don’t care to look a step deeper into the facts.  While on the surface Trump’s plan to stabilize the market looks like good one, it relies heavily on the actions of many different large companies, which are largely out of Trump’s control.  The fact that Trump has a plan to control prices from inflating does not mean we are out of harm’s way.  A plan is not the same as a solution.

Trumps says he can fix the stock market, but how much control does he actually have?   The stock market moves purely based on the buying and selling of shares of companies, so don’t companies ultimately have the most say in what goes up and down and when?  The answer is yes.  Regulations, taxes, and interest rates can help or hinder companies, but little can be done by the president to stop companies from buying, selling, and overvaluing their stocks.  In a January 2016 interview with "Good Morning America," Trump admitted he wouldn’t want to have to deal with the stock market “bubble.”  “We're in a bubble," he said. "And, frankly, if there's going to be a bubble popping, I hope they pop before I become president because I don't want to inherit all this stuff. I'd rather it be the day before rather than the day after, I will tell you that."  A stock market bubble is when the prices of stocks are much higher than they should be.  The real prices should be lower, but overinflated prices create a gap, or “bubble,” between the value and the price of stocks.  Bubbles can be dangerous because they are prone to a collapse when people start to sell.  Because the price is so inflated, the stocks drop quickly and inconsistently which often causes people to panic and sell.  On a large scale, actions like this can cause a crash.  Trump admitted that the task of saving the market from the bubble of inflation is not an easy one, but only a few months later in April he told the Washington Post, "I can fix it. I can fix it pretty quickly.”  Did the stock market become much, much easier to fix within four months? Or is it more likely that Trump just wants to make people believe he has a plan that will work?  Either way, here’s why Trump’s plan will not work.  He says that the wealthy companies will use their tax cut money to “create tremendous jobs and expand their companies,” and that they’re going to bring their money back to the US “to be put to use on the inner cities and lots of other things.”  This means that most of his plan relies on these companies who have money overseas doing exactly what he wants them to do.  These giant corporations have no interest in doing what Trump wants.  They have their money overseas for a reason: they’ll do what it takes to make sure they make and retain as much money as possible.  Why would they take their tax cuts and pour it back into the economy when they could keep doing what they’ve been doing for years- investing, cutting larger corporate checks, and increasing stock value.  As I mentioned earlier, some companies claim that they’d use a Trump tax cut to hire and buy American, but wouldn’t you say the same if it meant you could avoid 25% in taxes?  Cisco’s  CFO Kelly Kramer said that the company would first use the money to make changes to its debt structure, and then would make “a blend of actions we can certainly take with our dividend as well as our share buyback.”  This contradicts what the company’s CEO said earlier in the year, that the tax cut money “could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses.”  The bottom line is that these companies while do what benefits them the most.  Getting the money into the states by offering tax cuts is a great idea, and while it may raise government tax revenue, it will not keep the stock market from forming a bubble and ultimately collapsing.  Several companies who have significant money overseas, including Goldman Sachs and many banks, have said specifically that they would use the money for things like raising buybacks, creating dividends, and buying other companies, none of which would help stabilize the stock market.  If anything, it would further the inflation and increase the overinflated stock prices even further, despite no real growth.  Companies can and will run up their stock prices to please shareholders and put up good numbers even though they will be making little to no actual growth.  

Trump’s plan may be destined to fail, but it isn’t the reason we are facing problems with our stock market.  Inflation constantly exists in the stock market, and the government is always doing its best to keep it stable.  When companies or industries are overvalued, it is the governments job to re-evaluate and re-price.  But what if the market as a whole is overinflated?  As Trump said himself, the market is in a bubble.  Prices are higher than company value should be, and the problem is getting worse since.  With a 6% increase in the market between the election and the inauguration, Trump must know his effect on the stock market so far has not been exactly healthy.  The fact that so much has gone up so quickly before he even gained office means that he has some catching up to do.  The market increase can be credited to the anticipation of Trump in office, so until our actual economy grows 6% we are trading with stocks that are overpriced.  To give an example, the automobile industry has reported the highest levels of inventory of all time despite sales being in decline for the past 4 years.  Because the companies have so much inventory, they can “accurately” value their company at a high price.  The fact of the matter is, the high price does not mean they will be able to sell their cars.  The stock price accounts for the great inventory, but not for the decline in sale (Forbes).  High prices look good for the company and for the government, so it only makes sense that accurate prices are a later priority than keeping the economy moving “forward.”  “If rates go up, you’re going to see something that’s not pretty,” Trump told Fox News in an interview in September. “It’s all a big bubble” (4th Media).  Trump is aware of the bubble.   He told “Good Morning America” that there is one.  He said it needed to be “popped” sooner or later.  Since he was on the show, stocks are up and there has certainly not been a bubble.  Has Trump forgotten about the bubble?  Has it all just worked itself out?  Isn’t it more likely that there is a bubble, it’s still a problem, but the President now has his plate full with issues that take higher priority.  Since he’s been in office, it seems less important to Trump to call attention to the flawed stock market.  The 6% spike after Trump’s election may not seem like a big deal, and it may not be, but it’s a slippery slope.  Artificial growth in the stock market causes real change and has real influence on business.  Once they get going, stocks can keep inflating until they become too expensive and eventually plummet.  While this is not the case right now, it very well could be down the road.   Mortgage and refinancing activity is rapidly slowing down, and home sales rates have been getting weaker (Investopedia).  High-end real estate markets such as New York City, Miami, Chicago and the San Francisco-Bay Area are already experiencing a dramatic price fall while the rate and scale of foreclosures increased.  According to Maury Klein, a history professor who specializes in the stock market crash of 1929, the housing market tends to reflect the stock market in pattern, and only on a few occasions has it not.  Among the few times where the housing market has failed to reflect the stock market for a significant time are the dot com crash and the housing bubble.  Three times in our history (including the crash of 1929), has the housing market tried to warn us of danger ahead.  The current dip in out housing sales could coincidental, but only time will tell.  In addition, the unprecedented stock market growth is similar to the growth before each crash mentioned before.  In all cases, whether it be housing, the internet, or Donald Trump, the public was given something unhealthy to believe in which caused problems.  The unbelievable hype that came with the “never-slowing” housing market and internet is now coming with Donald Trump and his plans to completely overhaul the US economy (Rabble Rouser).  This of course, does not mean we are on the verge of an economic disaster.  What it means is that our current economic situation could cause or could have caused a bubble.  Maybe it’s unlikely, but nobody saw it coming last time either.

The idea that a stock market crash could occur during Trump’s presidency is not to say he will fail or even do poorly.  Right now, he seems unstoppable.  He has his plan, he knows what he’s doing (at least in the business field), and he is as committed and resilient as you could hope a president would be.  The stock market went to shit when the internet came to, all because people couldn’t handle the rapid growth and the new discoveries that came with it.  Is our economy ready for Trump?  Could his all-systems-go attitude shock the economy like the internet did?  One thing’s for sure: no one knows.  Trump’s influence on business and the economy could be enough to send us into a new era of American business.  This may be enough, though, to severely overinflate and damage our stock market.
