The US Stock Exchange is playing the adult role in the room. Stock prices have fallen sharply, but in an orderly manner. The fund managers and the stock markets have handled a large volume without problems. That despite Trump's unsustainable policies and his clumsy efforts to inculcate calm. As long as they persist, prices may continue to fall.
The S & P 500 continues near the bearish territory, with a drop of 20% with respect to the maximum of the year. Little has changed in the economy to justify such massive erosion. Retail spending rose by more than 5% during the holiday season, the fastest pace in six years, according to Mastercard. The lowest unemployment rate in almost 50 years has clearly driven consumer confidence.
If the actions reflect doubts about the future, they may arise from Trump's policies and their increasingly erratic communication. The tax cuts that came into effect at the beginning of the year and that fueled corporate profits and stocks have put the deficit on track to surpass a trillion dollars, and the government has offered no plan to stop it. Last week's rate hike was a reasonable response to a booming economy, but Trump responded by sharply criticizing Jerome Powell, president of the Fed.
White House economic adviser Kevin Hassett said yesterday that Powell's job is safe. It is not a more effective way to calm the markets than the comments of the Treasury secretary. It can cause investors to become defensive and companies buy shares instead of investing.
All this has meant that the US stock market is valued more reasonably. The S & P 500 is trading at just under 14 times the expected profits for 2019, down from a high of almost 19 times last year. But markets rarely stop at fair value. The fixed-term multiple was submerged in single digits at the lowest point of the crisis and spent much of the next four years below 13. It would be irrational to assume that the worst is over.
The authors are columnists of Reuters Breakingviews. The opinions are yours. The translation, of Carlos Gómez Down, it is the responsibility of Five days