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Donald Trump Just Set the Stage for a Painful Dow Dump

Last Updated September 23, 2020 12:42 PM
Josiah Wilmoth
Last Updated September 23, 2020 12:42 PM

By CCN.com: The US stock market fought off triple-digit losses to mount a modest recovery on Wednesday, just one day after the Dow cratered by nearly 500 points. However, this short-term rebound bears all the red flags of a classic Trump pump, and the president may have shoved the market dangerously close to the cliff’s edge.

Donald Trump Pumps Stock Market With Dangerous Tweet

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Dow futures jumped after Trump all but promised the market would see a trade deal this week. | Source: Yahoo Finance

While Trump’s staggering business woes dominate the headlines, the US-China trade war continues to move the stock market on Wednesday.

Initially, the Dow, S&P 500, and Nasdaq slunk lower in response to a report that Beijing desired to fundamentally reshape the draft trade agreement that was the product of months of tedious negotiations.

Later, they shot higher after President Trump tweeted that Chinese negotiators were coming to Washington to “make a deal.” White House Press Secretary Sarah Huckabee Sanders affirmed Trump’s stance soon after, assuring reporters that the administration had received an “indication” that China wants to cut a deal.

“We got an indication they want to make a deal,” Sanders said, per a Reuters  report. “Our teams are in continued negotiations. They’re going to sit down tomorrow. We’ll see what happens from there.”

The twin statements launched the Dow as high as 26,096.12, more than 200 points above its intraday low at 25,889.4.

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The Dow entered recovery mode on Wednesday, in no small part due to the Trump administration’s trade war optimism. | Source: Yahoo Finance

The DJIA later pared those gains after China hinted that it would call Trump’s bluff if he raises tariffs on Friday. Beijing promised to take “necessary countermeasures” that could quickly reignite the dormant trade war.

Even so, all three major stock market indices continue to trade well above the lows forecast during a dismal pre-market futures session. All because Trump virtually promised Wall Street that the US and China would reach a trade agreement this week.

Dow Risks Swift Sell-Off if Trump Loses Gamble

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Trump succeeded in pumping the stock market. Now he must deliver a trade deal to prevent a stark reversal. | Source: REUTERS / Carlos Barria

However, given Donald Trump’s laser-focus on bolstering the stock market, along with his proclivity to shoot from the hip, should investors trust him when he says that China is coming to “make a deal” before enhanced tariffs kick in on Friday morning?

CNBC analyst Jim Cramer indicated that they likely shouldn’t.

“This is about getting the Dow up a little bit but also pressuring” China, ” Cramer warned  this morning. “You put this tweet out because some of the price-weighted stocks in the Dow will rally.”

Here’s the rub: What goes up can also come down – often alarmingly quickly.

That’s precisely what could happen if the next round of trade negotiations come and go without concrete progress, i.e., something more tangible than trotting out US Treasury Secretary Steven Mnuchin to gush about how the deal is 90% complete and the two sides merely need to cross a few T’s and dot a few I’s.

So will Trump’s gamble pay off, or will it just delay – and perhaps intensify – an inevitable Dow Jones dump?

We’ll find out soon. The clock is already ticking.