For months, President Donald Trump boasted about having steered the U.S. stock markets to record high after record high.
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What a difference a few days can make.
The market free-fall, explosive volatility and now partial recovery of stock prices have served as a stark reminder that Trump, like his predecessors, isn't commander in chief of the U.S. economy — or the financial markets. The markets pivot on forces that owe at least as much to computerized trading programs, overseas investors and global central banks as they do to a president's policies and force of personality.
The Dow Jones industrial average went on a wild ride Tuesday — ricocheting between losses and gains — to close up more than 560 points, or 2 percent. The gains weren't enough, though, to offset the dizzying drops from the prior two days of frantic trading.
Anxiety has settled deep into a market that Trump long treated as a sure-fire triumph.
The same investors who cheered Trump's tax cuts and stayed calm amid the threat of a nuclear attack from North Korea are now dreading the risk of higher inflation and the prospect of rising interest rates engineered by the Federal Reserve and other central banks.
Beginning immediately after his 2016 election all the way through last week's State of the Union address, the president repeatedly claimed credit for a surging stock market and increases in Americans' retirement saving accounts. On Twitter, he declared that stocks would rise even higher once his $1.5 trillion tax cut was "totally understood and appreciated."
Investors and the trillions of dollars they control, it turns out, have minds of their own.
"This is a healthy reminder that there are risks in the market," said Mark Doms, a senior economist at Nomura Securities. "If you invest in the stock market, there are ups and downs. We just hadn't had too many downs recently."
It's not just stock prices that have been tumbling. Bond prices have been falling and interest rates have been rising on U.S. Treasurys. The result is higher loan costs, which make it more expensive for the government to borrow and more burdensome for Americans who need to take on debt to buy homes or cars or to pay for college.
In the 1990s, James Carville, an aide to President Bill Clinton, declared that the bond market, not just elected officials, had power to shape White House budget policies. The bond market, in setting federal borrowing rates, determined just how much the government could afford to borrow.
"I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter," Carville said. "But now I want to come back as the bond market. You can intimidate everybody."
What the Trump administration may find frustrating is that markets have plunged off of relatively positive economic news. The January U.S. jobs report showed that Americans' average hourly wages, which have lagged for years, had shot up 2.9 percent over the previous 12 months — the fastest such increase in more than eight years. And Trump's $1.5 trillion in tax cuts promise a further dose of economic stimulus.
But the prospect of faster wage growth carries potential downsides, too. Inflation could end up being higher than expected, which could lead the Fed and other global central banks to raise the short-term rates they control faster than investors had been expecting. There is also the risk that the Fed could overshoot, as it sometimes has throughout its history, and raise rates so much or so fast as to cause an economic downturn.
The markets, in short, have had to adjust to the risks of higher inflation, more government debt and the potential for central banks around the world to simultaneously reduce their economic support by raising rates — perhaps aggressively. In an era of computerized trading that moves in microseconds, these adjustments can cause the markets to violently whipsaw as they did Monday afternoon and Tuesday morning.
For now, the Trump administration is choosing to emphasize the possibility of faster wage gains. But it's not apologizing for placing so much emphasis on the stock market's performance. At a House hearing Tuesday, Treasury Secretary Steven Mnuchin was asked whether the administration would take any responsibility for the recent market drops.
"I think we will still claim credit for the fact that it is up 30 percent since the election," he said.
Yet while Trump has bragged in public about record stock prices, in an interview last year with The Associated Press, he acknowledged the trade-offs that result from linking his presidency so closely to the financial markets.
"You live by the sword, you die by the sword, to a certain extent," he said.
AP staff writers Martin Crutsinger and Darlene Superville contributed to this report.