Donald Trump likes to point to the stock market’s and the US economy’s buoyant performances. But Jeremy Siegel, noted Wharton professor, warns that these two markers could take a dive—and pull down the president’s 2020 reelection prospects with them.
That’s why Trump needs to strike a deal ending the US-China trade war, Siegel told CNBC Wednesday.
“A year from now, we can’t be lower on the stock market than we are, and our economy has to be better,” Siegel said. “So it’s up to Trump to make a deal.”
Siegel ought to know. His famous investing book, “Stocks for the Long Run,” argues that equities on the whole advance over the decades, averaging 7% increases per year after inflation. An ardent bull, he of course acknowledges that there are times that things really don’t go well.
Although the economy hasn’t loomed large as a political issue this early in the campaign season, that could change. Slumping economic and market numbers have been devilish for other incumbents seeking a second term. Just ask Jimmy Carter (losing in 1980) and George H.W. Bush (1992).
The S&P 500 is up 13.9% this year, and the economy grew 3.2% in the first quarter, which is an improvement on the 2% average in the pre-Trump years since the Great Recession.
Lately, however, the market is down as Trump has imposed new tariffs on China, inviting Beijing’s retaliatory levies, and talks between the two sides have broken off. One estimate has the S&P losing some $1.1 trillion since Trump imposed the new round of tariffs May 5.
“The market wants a solution,” Siegel said. “Don’t forget, the market didn’t really want this trade war to begin with. Let’s not rock a boat that’s going well.” Previously, he has forecasted that the US stock market could drop as much as 20% if the trade conflict continues.
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