On Feb. 5 the Dow Jones Industrial Average (Dow) dropped almost 1600 points, making it the biggest decline the market index has seen since August of 2011 (CNN).
As those who follow stocks and politics know, the market had maintained consistent gains since President Donald Trump took office in January of 2017. Unfortunately, for both Democrats and Republicans, Trump cannot take credit, nor be blamed, for this occurrence.
As I have stated in previous articles, presidents either benefit or suffer from the previous president’s economic legislature within a year of their taking office, therefore, to credit Trump with the recent success of the stock market would not be accurate.
However, one cannot blame him for the drop in the Dow for that same reason. He has not been in office long enough for his economic plans to take full action, and it would be hard to imagine they would have that kind of drastic effect.
So, why such a sudden drop in the stock market? Investors are skeptical of other investors’ complacency, considering the market has not had an aggregate loss since the election. Naturally, the market was bound to have a drop off at some point.
Nonetheless, an area of interest that is affecting the market is interest rates. Interest rates have risen immensely since the turn of the year. These rates affect the market because it becomes more expensive for banks to borrow money. This causes investors to hold off on subsidizing stocks.
The rise in interest rates are also a reflection of the major increase in minimum wage across the United States. In order to prevent inflation due to these wages, interest has increased in order to shrink money supply. All of these are potential reasons as to why the Dow dropped so tragically.
Unfortunately, broadcast news outlets have utilized the successes or failures of the stock market to dignify the success of Trump’s presidency when he is not the sole determining factor.
Generally, the effects of a president’s economic plan are not in full swing until halfway through their presidency. The recovery of the Dow after this hit will be the real indication of how the country is doing economically.