By CCN Markets: Most analysts think Donald Trump would rather ink a trade deal with China than let the stock market fall. But the big question is, how far would the Dow Jones and S&P 500 have to collapse before Trump steps in?
According to a survey by Bank of America Merrill Lynch, the key level for money managers is the December 2018 stock market low.
- Dow Jones crisis point – 21,792
- S&P 500 crisis point – 2,351
Trump will sign trade deal if Dow falls 16%
The survey, which polled US money managers with a total $528 billion under management, draws a red line for Donald Trump. The Dow’s red line is 21,792 which would represent a 16.5 percent drop. Falling back to this December 2018 low means Trump would likely be forced to seek a comprehensive trade deal.
The December crash marked the worst year in a decade for the stock market. With a 20 percent fall from its record high, the S&P 500 flirted with falling into an all-out bear market.
As trade war fears continue, money managers are watching this level carefully. If the Dow and S&P 500 return to these lows, they believe Trump will act fast.
Stock market strength crucial for re-election?
Donald Trump often cites the stock market as a barometer of his presidential success. With that in mind, he’s unlikely to let the Dow and S&P 500 slide as the re-election campaign kicks off.
Dow Jones has best week of the year!
— Donald J. Trump (@realDonaldTrump) June 7, 2019
Trump will build his campaign around his record of economic success. So a collapse in the stock market or an all-out recession could cripple his chances for re-election.
With that in mind, he’ll almost certainly ink a trade deal with China if trade war fears trigger a sell-off. As JP Morgan analyst Marko Kolanovic explained, Trump would sooner sign a deal than let a “Trump Recession” take hold on his watch.
Trump to meet Xi Jinping at G20
Optimism around a trade deal grew this week as Trump promised an “extended meeting” with China president Xi Jinping at the upcoming G20. Negotiations will continue in the run-up to the event.
Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.
— Donald J. Trump (@realDonaldTrump) June 18, 2019
The diplomatic tone is a relief for investors after months of renewed tariff threats and tit-for-tat exchanges between Washington DC and Beijing.
Dow Jones opens flat as traders await Fed decision
Dow Jones Industrial Average futures are flat in early trading on Wednesday. As of 6.11 am ET, dow futures paused just 1 point higher at 26,496. S&P 500 futures traded flat after ending Tuesday’s session 1 percent below its record high.
Traders are in wait-and-see mode as the Federal Reserve prepares its interest rate decision later today.