Pandemics and Behavior Finance Control Wall Street Volatility: Where Emotions Rule

By Ernest H. Brooks

Considering the stock market an actual person, this book takes an investor through a journey that makes sense of its nuances, complexities, and how it acts and reacts to the financial and economic environment.

You begin at the start of the map as a novice, breaching barriers on insights that help you foster your investment portfolios to new heights of profitability. You'll learn about the accuracy of behavioral finance and break misconceptions that often scare off investors.

On your way, you will be surmounting information gaps, understanding the volatile nature of the stock market, and learning more about the tools of the trade. From process awareness about stock ownership to subjective probability and more, there is much to uncover.

The goal is to make the road one easier to travel, equipping you with the capabilities to carve your own path to success with a better understanding of the very lively behavior of the stock market.

In the end, you'll come out a little more seasoned and a little more empowered to take on the waves of excitement the stock market brings.

• Language: English
• Publisher: Christian Faith Publishing, Inc.
• Release date: Jul 30, 2021
• ISBN: 9781098085896

Book preview

1

Donald Trump and Subliminal Messaging Mastery

The minds of human beings are divided into two different parts: the conscious part and the subconscious. The conscious part works while we’re conscious and awake. We make all our decisions with the conscious mind. On the other hand, the subconscious is always active, regulates everything in our character, our body, our speech, and receives information and processes it continuously, regardless of what we are doing.

A human mind can be considered an iceberg. The tip of the iceberg that appears on the ocean’s surface is the conscious mind while the part that’s under the ocean is the subconscious mind. The subconscious mind is thus more powerful than the conscious part. When an idea is accepted by the subconscious mind, it starts executing it. The subconscious mind accepts what a person believes consciously. It doesn’t have the ability to reason things like our conscious mind. The subconscious mind is like a memory of a computer system. The computer never questions the information we are storing in the memory. The information is just used by it. In a similar manner, the subconscious mind never questions what’s being stored in it; it just uses the information to direct us.

Another way to describe subconscious mind is to think of it as a voice recorder. The voice recorder continuously plays, and the subconscious part receives and stores information without us even being aware of it. If information is received with us in a proper manner and at the right frequency and volume that bypasses our conscious mind, then it dwells in our mind and becomes a part of us. If another track is played, then its results on us will be different. Our thoughts will change, and we’ll work differently.

Subliminal messages operate below conscious awareness level and are delivered in such a way that only our subconscious mind perceives them. Our conscious awareness is bypassed by hiding the messages from our conscious mind and directing them directly at our subconscious mind. This is how subliminal messages are used to influence our behaviors, thoughts, and feelings.

There can be audio subliminal messages as well as video messages. For example, the phrase I will make money can be embedded into an audio recording in such a way that the conscious mind won’t hear it or in a video recording in which it is only displayed for a fraction of a second so that the conscious mind cannot process it. Then, only the subconscious part will be able to clearly perceive the phrase. When this phrase is continuously repeated, it will rewire our mind and alter our thought patterns, motivating us toward making money—Trump’s mastery 101: making money.

Subliminal messages have existed for several decades. Studies have shown that subliminal messages indeed work and can influence our behavior, attitudes, and judgment through the subconscious mind. But how do subliminal messages change us? Scientific research holds the answer.

Scientists have proven that new neural pathways are created in our brain when we are exposed to certain messages and activities. For instance, if we play a certain game over and over again, our brains will be rewired. Similarly, we can rewire our brains if we listen to a same message again and again. Studies have shown that if the brain is exposed to certain audio or visual stimuli, it will have a major impact of those audio or visual recordings. Subliminal messages can plant a certain idea in our subconscious minds and program our bodies to act on that idea. Since our subconscious mind doesn’t have the ability to reason things out, we’ll act on any idea that gets planted into the subconscious mind. Subliminal messages can thus have both positive and negative effects on us.

In a book titled Subliminal Seduction, the author claimed that subliminal messages were widely being used in advertising. Because of the claims made in the book, general public became afraid of the dangers of subliminal techniques. Federal Communications Commission held hearings and declared that using subliminal techniques in advertisements was contrary to the public interest as it involved intentional deception.

Subliminal messages gain their power from the fact that they are able to bypass the conscious mind and enter our subconscious part. Therefore, subliminal messages and suggestions are much more powerful than normal suggestions that are perceived by our conscious mind. This method of influencing or persuading a person can be considered similar to hypnosis or auto-suggestion in which a person is encouraged to relax so that the suggestions that are being given to them can reach deeper parts of their mind. Some say that our unconscious mind isn’t capable of refusing subliminal or hypnotic suggestions. That’s why subliminal or hypnotic suggestions are extremely powerful in changing a person’s behavior and thoughts.

Sometimes subliminal messages are confused with supraliminal messages. Supraliminal messages are signals or stimuli that can be seen or heard by us, but we aren’t consciously aware of how these messages impact our behaviors. The supraliminal messages were put to the test by researchers in a British supermarket. They changed the music of the store to the supraliminal stimulus to encourage customers into buying either German or French wine. One day, German music was played, and the next day, French music echoed the store. When the German music was played in the store, more German wine was bought more by people, and when the French music was played in the store, the French wine outsold German wine. Shoppers were asked to fill out questionnaire after this test, and it was found that the shoppers were well aware of the music that was playing in the store, but they couldn’t determine how the music was affecting their behavior.

Subliminal messages are similar to supraliminal messages, but the stimulus or signal is below the level of our conscious awareness. A human cannot perceive subliminal messages consciously, even if they try to search for it. In terms of visual signals, a subliminal message is flashed across a screen for some milliseconds. The window is too small for a human being to analyze the message consciously. An auditory subliminal message is delivered at a frequency that human beings cannot detect. Another way to send auditory subliminal message is by hiding it beneath other sounds.

The idea behind subliminal messages is that our conscious mind isn’t able to discern such messages, and thus, these messages are absorbed into our minds unchallenged. Once subliminal messages are absorbed by our minds, they can influence our behaviors, our thoughts, and our judgments. If we couldn’t discern the message, they wouldn’t be subliminal. This means that many subliminal messages that are reported to appear in advertisements, movies, music, etc. aren’t subliminal but are rather supraliminal.

The reason behind this detailed discussion on subliminal messages is to show investors how these messages are being used by Donald Trump. Whenever Trump steps on to the podium, he delivers subliminal messages to the world. However, most new investors miss the messages totally for lack of understanding of the stock market and its emotional patterns. Since investors are unaware of how subliminal messages work, they can’t see the hidden cues in the speeches and statements of Donald Trump.

Some people think that Trump doesn’t know what is doing nor does he know what he is saying. But that’s not true. Trump may appear like he doesn’t know anything, but in reality, Trump is well aware of all his actions, and there’s much more to him than meets the eye. The truth is Trump is a mastermind in subliminal messaging. He has been using subliminal messages in his statements and speeches since he became the President of the United States. For example, when he expressed concerns about tariffs, he sent subliminal messages months before savvy investors made millions.

When he talked about building a wall, construction companies gained several points to the good. Other industries gained points as well such as steel, aluminum, cement, and defense. Savvy investors could see the subliminal messages of Donald Trump in building a wall. They saw through Trump’s hidden message and realized how the construction of a wall will favor the construction, steel, aluminum, and cement companies. So they quickly bought the stocks of these companies, and when the prices of these stocks increased, they were able to make millions. The investors who couldn’t understand Trump’s subliminal messages were not able to profit from the stocks of construction companies and others.

Even the most controversial market of them all—the marijuana industry, which has brought jobs and reduced the unemployment rates in various states—gained points because of Trump’s subliminal message, Leave it up to state laws. Trump’s administration instructed federal law enforcement not to waste resources targeting marijuana operations in states where they are legal. Trump said marijuana legalization should be up to the states. This was a subliminal message for investors. Savvy investors were quick to act when Trump conveyed these hidden messages, and they knew that marijuana stock prices would increase because of Trump’s statements. Marijuana stocks gained points never seen before in its history. Even the small investors that were slow to the draw were able to make up ground by buying Exchange-Traded Funds (ETFs) in the marijuana industry.

The lesson here is to watch Trump’s stage performance and his subliminal messaging on all fronts. Investors should watch out for Trump’s speeches and statements and pay close attention to his words. Trump’s subliminal messages can greatly help investors with their investment decisions and provide them significant profits.

Views of our politicians may cause a cyclone of uncertainty in the stock market, however, with the basic principles of volume speculation the winds of disruption can be reversed. (E. H. Brooks)

In the next chapter, we take a look at Trump’s first year and the effect of his decisions on the stock market. Despite the criticism, the stock market performed well in Trump’s first year. Investors trusted Trump, and the decisions he took improved the stock market performance.

After thirty days of President Trump’s coming into the office, Standard & Poor’s Index for 500 top stocks climbed by 3.8 percent. We have also compared Trump’s first year stock market performance with that of Barrack Obama’s. Did the stock market performance of Trump surpass that of Barrack Obama? The next chapter answers this.

2

Trump’s Stock Market

On Tuesday, November 8, 2016, against all odds, projections, and polls, the Republican candidate, Donald Trump, emerged as the winner of the presidential election, defeating Hillary Clinton.

Trump’s victory was unexpected, and financial markets had priced in for Clinton’s win, which they saw as a better outcome because she symbolized less uncertainty and fewer unknowns. Trump’s unexpected triumph shook the financial markets initially, but they recovered soon after.

The morning after Trump triumphed, a liberal economist penned a strong and emotional op-ed claiming that the United States’ stock market would never be able to recover from the surprise victory of Donald Trump. The economist’s predictions were wrong. Even a year after the President’s win, the stock market remained strong.

The economist assertion was reckless, but it’s understandable why the economist made such a statement considering how the stock market futures suffered on the night of Trump’s victory. Dow futures went down by more than eight-hundred points. However, investors came to terms much quicker with the White House than economists had predicted, and stocks were up on the first day of trading after Trump’s win.

They did not slow down much afterwards. Trump was able to wave the flag of economic success and silence his critics momentarily.

Thirty days past the inauguration

After thirty days of President Trump’s coming into the office, the Standard & Poor’s Index of 500 top stocks had climbed by 3.8 percent. It was reported to be the best in the fifty-four years since Vice President Baines Johnson came into the office in 1963 when President Kennedy was killed. The market at the time of Johnson rose 6 percent.

The Dow Jones Industrial average was also reported to be high as it rose 4.02 percent in the initial thirty days of Trump’s inauguration. It was the best thirty-day performance after inauguration in a hundred and eight years or since Dow Jones Industrial Average rose 5.07 after President William’s appointment in 1909. The performance of Dow in the first month of Trump’s presidency was sixth best in terms of percentage behind President Roosevelt’s 1945’s victorious campaign.

One hundred days past the inauguration

The record-setting performance was unexpected, and odds were never in Trump’s favor, but the president managed to keep the stocks high. April 29, 2017, marked the hundredth day of Trump’s presidency, and although he confronted major criticism for not implementing many growth initiatives that were promised prior to winning the November 8 election against his rival, Hillary, the market had been resilient.

Over the next one hundred days, the Dow Jones Industrial Average had climbed 6.12 percent while a 5.32 percent gain was notched by the S&P 500 Index. The Dow had climbed 14.22 percent, the S&P 500 had advanced 11.43 percent, while the Nasdaq Composite Index had returned 16.45 percent. Only President Kennedy and Bush had scored better than Trump in their first hundred days in the office. Kennedy’s S&P returns surged 9 percent while that of George Bush were recorded to be 7.7 percent.

On March 1, 2017, both the S&P 500 and Dow Jones reached record high figures as investors showed favorable reaction to Trump’s growth plans for lowering taxes and regulations, repatriating US companies’ foreign profits at low rate of tax, and spending more on infrastructure.

The stock indexes, although, faltered a little in the months of March and April because of distress related to roadblocks that confronted Trump’s tax reforms and legislative proposal, but the major indexes rallied soon after. Trump relaxed his strident views about trading with China and showed stoutness toward Russia, which helped strengthen his position in the eyes of the investors.

After a year of Trump’s surprise win over Hillary Clinton, the stocks still remained at pace. The truth is the drama that surrounded Trump was tuned out by Wall Street. Investors ignored the testimony of James Comey in June. Trump’s failure to repeal Obamacare did little in slowing down his momentum in summer. His decision of pulling out the Paris agreement, his vague condemnation of Charlottesville incident where white supremacists assaulted dozens of US citizens, his continuous arguments with Kim Jong-un, the Russian investigation, allegations related to badmouthing El Salvador, Haiti, and other African nations—none mattered to investors. A detailed look over Trump’s first year’s stock market performance shows how the figures stand out.

A year in review

Market performance in the first year of Trump’s presidency was nonstop high. Major indexes broke many records in 2017, and there was no volatility and pullbacks. Wall Street gains were so huge that they were reported to be the best for a newly elected president in decades.

Since the inauguration of Trump, the Dow Jones Industrial Average rose 32.1 percent. This calculation covers the period of one year from January 19, 2017, to January 19, 2018. The 32.1 percent gain during first year of Trump stands in the second position in the history of the Dow after Franklin Roosevelt’s all time high of 96.1 percent.

The gains accomplished by Trump are the best in terms of first-year performance by any Republican president, and it is much higher than the historical average of the party. During the first year of a Republican president, the average gain was reported to be 4.38 percent. Democrats held a better record in this score with an average gain of 11.7 percent. The overall average gain for first-year’s presidential term is 7.7 percent.

However, for the S&P 500 the stats were not that strong as a gain of 24.1 percent was recorded in the first year of Trump’s presidency. That is just the fifth-best performance of the first year behind two terms of Franklin Roosevelt when S&P rose 89.6 percent in 1932 and 34.7 percent in 1946, the first term of President Obama when the S&P gained 33.9 percent, and the second-term President Clinton in 1998 when 26.1 were gained by the S&P.

In the first year of Trump’s presidency, a gain of 32.4 percent was recorded in the Nasdaq Composite Index. No other Republican has performed better than this, but still, Trump falls third overall in the ranking behind both terms of Obama. The Nasdaq rose 49.8 percent in the first year of Obama, and 34.8 percent was recorded in his second term.

Trump made sure to make his presence count as he never let the growth of the market pass without commenting on it. He tweeted about all the Wall Street gains and gave all the credit for the rally to himself. The analysts, however, were reluctant to accept that Trump was responsible for the price moves and claimed that political reasons had driven the market gains. However, some credit goes to Trump’s administration, particularly for the rally of Dow, especially in the last few months of the president’s first year, when Trump passed a tax bill that cut down corporate tax rates. This provided a tailwind to markets that were rising already because of corporate profits and economic data.

3

Trump and Obama: A Comparison

President Trump made a lot of buzz about how his achievements were the best and the biggest, but how does his stock market record compare with that of his predecessor, the former President Barrack Obama? Did the stock market performance of Trump surpass that of Barrack Obama’s?

Numerically, Trump holds a firm position. When the industrial average of Dow Jones, since the election win of Donald Trump in November until January 5, 2018 is analyzed, the results demonstrate that the Dow rose 35 percent from 18,589.7 on election day to 25,075.1 on the fifth of January.

That rise is surely impressive, and it surpassed the performance of Dow under Obama. The industrial average of Dow under Obama during the same time lags far behind that during Trump’s time as the Dow experienced an increase of 15.7 percent rising from 9,139.3 to 10,572.

From this analysis, it does appear that Donald Trump’s stock performance was better than that of Obama’s, but it should be noted that if the timeline for the measurement is changed, it will create a major difference in the overall performance. Dow is volatile, which means that everyday changes can dramatically affect the presidential performance, depending upon when the count is started and when it is ended.

For instance, if the performance of Dow is analyzed, starting from the Inauguration Day instead of the Election Day to the fifth of January, Trump’s stock market performance falls short to that of Obama’s.

Starting from the Inauguration Day to the fifth of January under Trump, the Dow has experienced about a 26 percent increase rising from 19,827.3 to 25,075.1. That is undoubtedly impressive. But it doesn’t compare with the performance under Obama in the equivalent period. Under the presidency of Obama, Dow experienced an increase of 33 percent as it rose from 7,949.1 to 10,572.

What’s interesting is that if the analysis begins from the low point of the market on March 9, 2009, during the Great Recession, an even more impressive performance is witnessed under Obama’s presidential rule. On that day, the Dow was struggling at 6,547. Between that time and January 5—a period of almost ten months—the Dow’s industrial average rose by 61 percent. That’s truly impressive and is more than three times faster than the rise witnessed under Trump during the same period.

The Dow plunged 1,175 points—worst in history

Trump’s claims about how well the stock market had performed during his time took a serious hit when the Dow Jones industrial average plunge a record 4.6 percent or 1,175 points on February 5, 2018, and the S&P 500 turned negative. The S&P 500 declined by 4.1 percent while Nasdaq fell by 3.8 percent.

For marketers, it was a nightmare similar to that witnessed in August 2011. A few months before the plunge, market volatility was extremely low, but with the decline of Dow, volatility spiked, and the CBOE Volatility Index that acts as a gauge of investor fear jumped by over 100 percent.

The market sell-off was driven by fear of investors about inflation and how it would affect the interest rates. Rising interest rates are key for the US market. Markets don’t die from old age; it is the high interest rates that kill them.

Wall Street never focuses on the long-term. Investors become worried that if wages grew too quickly, it would affect the corporate profits, and the Federal Reserve would become concerned about inflation.

On February 2, 2018, the job reports showed a 2.9 percent growth of wage from a year before. This gave a signal that labor market was tightening but also pointed that increased inflation was near. Investors feared that if inflation increased from the economy heating up, it might impel the Federal Reserve to increase the interest rate faster than anyone expected. And the fear of Federal Reserve increasing the interest rate makes investors nervous.

What started on February 2, 2018, continued on the fifth and reached far beyond the United States. Selloffs were witnessed in European and Asian markets. The prices of oil significantly declined. Bitcoin that was experiencing a significant rise plunged to below $7,000. In December, 2017, it was trading at more than $19,000.

But the February 5 sell-off wasn’t the end of the world. The S&P and Dow were in the negative, but they were still up by 15 and 20 percent respectively when compared with 2017. And Nasdaq was still about 1 percent higher to where it stood at the beginning of 2018.

The stocks fell on the fifth of February, but that didn’t stop regulators from trading altogether. Moreover, experts had predicted that correction would occur in the near future as the markets had been continuously climbing since the recession, and it is not possible for bull markets to last forever.

Markets are notoriously unpredictable. Maybe Trump didn’t realize this until the plunge of the Dow. He was bragging about his presidency’s success before the plunge and how the stock market was smashing records during his time. On February 5, the stock market smashed another record with the biggest one-day point drop ever by the Dow. Trump probably didn’t expect this kind of record-breaking performance.

Trump’s reply

Trump did not say anything about the decline of the market initially. But he came out with a tweet a few days after the unexpected plunge. Trump said:

In the old days, when good news was reported, the Stock Market would go up. Today when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy.

Before the response of Trump on Twitter, Sarah Sanders, press secretary of White House, issued a statement in reply of the 1,175-point plunge. In the statement, it was said that the focus of the president is on long-term economic fundamentals. They are exceptionally strong with low employment, strengthening economic growth, and increasing wages for the workers. Sarah also said that the tax cuts of the president combined with regulatory reforms will enhance the United States economy even more, and prosperity will increase for the people of America.

The economy experienced a slightly better growth in 2017 than that witnessed during 2016, but wage gains and job creation remained modest. The Dow grew 25 percent in the first year of Trump’s presidency, so it was a sweet spot for the officials of the White House to promote their successful run. Trump tweeted on December 19, 2017, writing in capital letters:

DOW RISES 5,000 POINTS ON THE YEAR FOR THE FIRST TIME EVER—MAKE AMERICA GREAT AGAIN!

Before Trump took office, he used to mock the stock market. In September 2016, Trump said that the recent gains of the stock market were all because of a big, fat, ugly bubble which would pop when the interest rates were increased. The steep fall of the stock market prompted several Democrats to blame Donald Trump for the disaster.

When President Obama took office, America was struggling with a cratering economy, and the stock market bottomed out after a few months of his first term. The former press secretary of Obama, Jay Carney, tweeted after the 1,175 plunges of the Dow, saying it was a good time for previous administrations to be recalled in the office. They never took credit for the exceptional stock market, even when the Dow had more than doubled during Obama’s time. That’s because Obama knew two important things: one, that the stock market does not represent economy; and two, if you take the rise, you’re responsible for the fall too.

A former advisor of a senator said that by highlighting good news about the economy, presidents open themselves to criticism that emerges from bad news. Whether it’s the stock market or economic growth, all presidents like taking credit for it, and when the storm of bad news comes, they end up taking the hit.

The plunge of the Dow was the darkest day in the history of Wall Street since 2011, and it put Donald Trump in a tight spot as he took all the credit for the big market gains that came after the election. But what point was Trump making when he talked about the good news?

He was pointing to the fear of investors about the Federal Reserve increasing the interest rates as already discussed. This has happened under predecessors of Trump too.

Under Barrack Obama, this situation occurred more than once when Wall Street felt nervous because of the Federal Reserve raising interest rates owing to the good economic situation. In some cases, the opposite has been witnessed as well: Stocks went higher from bad news about the job situation as it meant that the money was not going anywhere.

The inverse reaction had become so common during August 2016 that even with a report about a strong job market, the investors treated the goods news as bad news.

The stock market is a reflection of what millions of people from all over the world think about the economic prospects of the US, based on how the thousands of firms perform financially. And not just how they think, but also how they’re willing to back their thoughts with hard cash.

This does not mean there are not times when the stock price of a company does not reflect its economic prospects. That is exactly why a billionaire managed to make a profit of $2 billion from an investment in Netflix when the company announced that it would be splitting in two parts. The billionaire realized that Netflix had made a blunder, but he knows that it also possessed the capability of recognizing the mistake, fixing it, and going off toward success.

Generally, stock indices accurately reflect economic prospects of each company, and collectively, they provide a good indication about the economic performance of a country. The reason Facebook, Apple, Microsoft, Google, Amazon, and Alphabet are the most valuable firms of the world is because they’re doing almost everything right from picking capable people for jobs and paying decent wages to coming up with products that really appeal to the people. And since the stock market’s crash in 2008, the economy, the companies comprising it, and stock markets that are a reflection of how companies are performing have risen. The S&P 500 Index was struggling at 683 in March 2009, but at the time of Trump’s presidency, it had reached 2,760. The Dow Jones Industrial Average witnessed a similar increase.

So what made the Dow Jones 1,175-point plunge the worst decline in the period of nine years? Critics had warned about a correction approaching soon because of several reasons. One is that the bull market had reached almost ten years, and that’s a very long time for the stock to keep on going up. It was inevitable, and correction could not be avoided. Also, for about ten years, the Federal Reserve kept its ZIRP (zero interest rate policy) to keep the money price artificially low through buying up various bonds of trillions of US dollars. They put the bonds on the balance sheet, which increased the demand for bonds and drove their prices up. If they had not done this, there would be no demand.

Interest rates that are kept artificially low prove to be a good fit for all those who depend on borrowed money to live—big banks, hedge funds, people who need mortgage for a home or a car. United States federal government has availed the maximum benefit of the ZIRP policy as it is the largest credit in the world with about twenty-one trillion dollars of outstanding debt.

By keeping the interest rates low for a long period of time, the US Federal Reserve promoted the deception of risk. Investors were increasing their risks with the stock market and bonds to acquire a better return on all their investments. The ending of ZIRP and the introduction of new tax laws in December 2017 slowly began to put a stop on all the risky investments that occurred before 2018.

The main catalyst for the stock market sell-off was not exactly obvious. Maybe the rising wages prompted it or the new tax law or the collapse of other high-end assets like the Bitcoin. Or maybe it was something completely different. But it was probably something that shouldn’t worry the investors too much. Periodic corrections in the US stock markets cannot be avoided after the amazing run-up that continued since 2009. Market corrections always present buying opportunities. This one—the Dow Jones Industrial Averaging plunge of 1,175 points—was another one.

The stock market was fine, even after the Dow Jones’ plunge, but people were concerned about Donald Trump. There was no telling what kind of destructive behavior he could exhibit; military combat with North Korea maybe. Trump’s destructive attitude is what makes investors worried and create difficulties for the stock market. A nuclear war or a constitutional crisis because of Trump could create bigger problems for Wall Street.

Trump doesn’t understand how the financial markets work, and experts even say that Trump’s idea of stock market is a bunch of people holding up pieces of paper, shouting and fighting on the stage of stock exchange. Many people, whom Trump did not listen to, had warned him about the fact that unemployment was at an all-time low, and the economy was strengthening, which meant that it was not the time for a stimulus. One expert had said that passing of the tax reform bill at this time was like throwing gasoline on an already burning fire. But Trump still went on with it because he doesn’t understand the stock market and made investors worried about a potential recession.

Donald Trump thinks that the stock market can be bullied and intimated like his political rivals. What can he do to control the stock market? Kick it out? Fire it?

Hypothetically, Trump doesn’t really understand the stock market, but the fact that the economy and stock market have remained strong during his presidential time cannot be denied. Both the United States and global economies remained strong even after the 1,175 points plunge of Dow, which led many analysts to point out the sudden sell-off was something like a correction for the valuations of the stock market and didn’t signal a bear market.

Unemployment in the United States remained low, corporate profits were strong, and growth was running fast. Japan and Europe were also growing, which signaled a synchronized expansion on a global scale, something that was not witnessed in the past few years. History shows that the market is capable of making its way through these kinds of corrections, and many times, positive returns come out after a full year, particularly when ongoing expansions are underway. March 2020, the market plunged 2,300 points due to one of the greatest pandemics ever. Trump undoubtedly understands market volatility today as this will be the greatest challenge faced during his presidency as investors display uncertainty in market conditions and move toward a bearish perspective.

4

Effects of Stock Market’s Rise and Decline

The rising stock market signifies confidence of investors as activity of buying increases prices. With the rise in stock, small investors gain wealth. Increased wealth leads to more spending as when investors are in a good financial position, they buy more securities while very few are willing to sell.

Decline of the stock market causes erosion of wealth. When investors see their portfolios’ value dropping, they spend less and start moving their money out of equities. A declining stock market shakes the confidence of the investors, and they refrain from putting their money in the market. The rise of the stock market during Trump’s first year raised the confidence of all investors whether small or large.

Shifts in the stock market also significantly affect the economy. If share prices collapse, economic disruption can emerge. For instance, the crash of the stock market in 1929 was a major factor behind the great depression. The stock market provides an excellent economic indication of the United States’ financial health. It shows how well the listed firms are doing. When investors are confident, they buy stock, stock options, or mutual funds.

The stock market adds to the economy of the nation. That is because the financial markets of the United States are quite sophisticated. It’s easier for any company to become public in the US in comparison to other countries. The information is also easier to obtain, which increases the trust of the investors. The stock market of the US, therefore, attracts more investors.

The stock market depends on confidence; therefore, a crash can have a negative impact on economic growth. When stock prices fall, wealth for pension funds, business, and investors decrease. Pension funds put a significant portion of their money in shares. Therefore, if share prices fall significantly, pension funds decrease in value.

The falling stock market can also hamper the ability of a firm to raise funds from the stock market. Firms who wish to expand by borrowing money often do so through issuing shares as it allows them to borrow money at a low-cost. However, when share prices are falling, it becomes difficult for them to grow and offer more job opportunities. When the value of retirement funds falls, the consumer spending reduces, and as a result, businesses suffer. If the stock market stays depressed for a long time. New business cannot get funds for growth. Firms that had put their cash in the stocks won’t have the money to fund pensions or pay employees.

In the first year of Trump’s presidency, the economy grew faster than the previous year with an annual rate of 3.2 percent. Its more than that of 1.5 percent recorded in the year 2016 and even higher than 2.9 percent growth in 2015, the best figure recorded during Obama’s time. This signifies the positive impact of rising stock markets on the United States’ economy.

President Trump’s first year in the office worked well for the stock markets and the economy, and he silenced all the critics like Krugman who claimed that the stock market and economy will suffer under Trump’s administration.

However, the skepticism related to the stock market that surrounded Trump’s presidency again spiked with the 1,175 points plunge of Dow. The plunge of the Dow was a big hit to Trump’s remarkable first year stock market performance, and it led some to believe that Trump really didn’t know anything about the stock market and he had nothing to do with the remarkable performance.

While many experts presented their reasons for the market sell-off, no one could predict what would happen in the future and how the investors would respond. They had to wait for things in Wall Street to settle