Democrats, not stock volatility, biggest risk to economic recovery: Larry Kudlow

President Trump’s top economic adviser Larry Kudlow is keeping close tabs on the volatility in U.S. stocks, which he says may be tied to fears about the damage the Democrats may do if they take the House in the upcoming midterm elections.

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“The biggest threat, the thing I worry about the most, is change in the House which will overturn the tax cuts and regulatory reduction,” said Kudlow during an interview with “Fox & Friends” on Tuesday.

The Dow Jones Industrial Average tanked over 500 points midday, before clawing back some of those losses. While the tech-heavy Nasdaq Composite, flirted with correction territory, down 10-percent from its August high. Despite Kudlow’s concerns, the catalyst for the selling came after blue-chips including Caterpillar and 3M delivered disappointing forecasts, blaming tariffs and currency fluctuations.

TickerSecurityLastChangeChange %
I:DJIDOW JONES AVERAGES23719.37+285.80+1.22%
I:COMPNASDAQ COMPOSITE INDEX8153.575088+62.67+0.77%
SP500S&P 5002789.82+39.84+1.45%
CATCATERPILLAR INC.125.03-2.37-1.86%
MMM3M COMPANY147.78-1.21-0.81%

President Trump has been aggressively dialing back regulatory red tape, as he cuts taxes. Earlier this week his administration and the Republican Party said they are working to introduce a “major” 10 percent tax cut for middle-class Americans around the beginning of November. “We’re putting in a resolution sometime in the next week or week-and a-half, two weeks … we’re giving a middle-income tax reduction of about 10 percent – we’re doing it now – for middle-income people,” he told reporters at the White House on Monday. “That’s on top of the tax decrease that we’ve already given."

Kudlow added that next leg of tax cuts are in the "planning stage."

Kudlow, who has helped craft Trump’s pro-growth policies, often touts the success of  broad tax reform.  The U.S. unemployment rate has dropped to 3.7 percent – the lowest since 1969 – helping fuel a record 7.1 million job openings, according to the JOLTS report through August, as tracked by the Bureau of Labor Statistics. That’s more than the 6.2 million unemployed Americans who are possibly on the hunt for a new job.

The U.S. economy is picking up long overdue traction. Second-quarter GDP jumped 4.2 percent, the strongest since 2014. While growth for the third-quarter is expected to come in 3.9 percent, according to the Atlanta Fed’s GDP Now tracker. On Friday, investors will get the first read on the third quarter GDP.

Despite the improving U.S. economy, October has been a rocky month for U.S. stocks. The Nasdaq is on pace for the worst month in a decade. While the Dow Transports and the Russell 2000, a measure of domestic companies, have both entered correction territory.

Suzanne O'Halloran is Managing Editor of FOXBusiness.com and is a graduate of Boston College. Follow her on Twitter @suzohalloran