During the runup to the election last fall, a vocal group of economists warned that a surprise win by Donald Trump would send financial markets into a tailspin.1 Instead, the opposite happened: After initially tumbling as the results came in on election night, markets surged the day after, and have risen steadily ever since.
Until today, that is. The Dow Jones Industrial Average closed down more than 120 points, making for its worst day since the election. The broader S&P 500 and the tech-focused Nasdaq Composite were down sharply as well. (Markets rebounded a bit near the end of the trading day.) To be clear, the declines stopped well short of what most investors would consider a “crash,” but they were enough that many market-watchers are predicting the end of the post-election “Trump rally.”
So what happened? Explaining market behavior is a fool’s game. But at risk of being proven a fool, let me offer a theory: Investors are waking up to the fact that they need to take Trump literally, not just seriously.
Regular FiveThirtyEight readers are already familiar with this literally/seriously construct — my colleague (er, boss) Nate Silver wrote about it over the weekend. The basic idea is that during the campaign, many in the media failed to take Trump seriously (by, among other things, doubting he could win), but insisted on taking his pronouncements literally (obsessively fact-checking his claims). His supporters, this argument goes, knew to do the opposite: They took him seriously but not literally.
Trump won the election, so the “seriously” question is no longer in doubt. But whether to take him literally was more of an open question, at least until last week, when Trump began making good on many of his campaign promises.
Here’s where the markets fit into this:
READ THE FULL BLOG POST HERE: Stocks Fell. Are Investors Finally Taking Trump At His Word? | FiveThirtyEight