By CCN.com: 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.
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.
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.
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.
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.
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 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.