What Is The Dow & Why Does It Fall Whenever Trump Makes News?
On Thursday, news that special counsel Robert Mueller had convened a grand jury in the ongoing Russia collusion investigation had an unintended repercussion. When the grand jury was announced, the stock market appeared to dip. As it turns out, such activity has become a trend, as the Dow tends to fall after Trump makes headlines.
The term "Dow" typically refers to the Dow Jones Industrial Average, a price-weighted index that averages 30 of the most significant publicly traded stocks on the New York Stock Exchange and the NASDAQ. Simply put, the Dow is meant to be a reflection of the U.S. economy. As the definition states, it takes into account the prices of big name stocks such as Apple, Disney, and General Electric. Using a complex divisor that accounts for things like mergers and split stocks, the Dow averages the stock prices of those 30 stocks to provide a reference point for the stock market — and the U.S. economy — as a whole.
In other words, when the Dow goes up, the U.S. economy should be doing well. When the Dow goes down, something is awry. Change is inevitable, but significant dips in the Dow send red flags in the form of worrisome headlines and drop-off charts.
Take Thursday's news of a grand jury, for instance. The reports that Mueller had convened a grand jury — which could bring charges in the Trump-Russia probe — broke shortly before the markets' close on Thursday. As the news broke, CNBC reported falling stock prices and a negative Dow. (The dip appeared to be short-lived, as the Dow managed to post a record close at the end of the day.)
Although the Dow recovered on Thursday, it's hard to miss the current trend: When Trump says something controversial or otherwise makes headlines, the Dow tends to dip. After Trump abruptly fired former FBI Director James Comey in May, for instance, the Dow reportedly fell by 32 points. In April, Reuters reported that the Dow closed 59 points down after Trump said in an interview that the dollar was getting too strong. And in March, the Dow reportedly dipped after the House failed to pass a Trump-supported health care bill.
When the Dow falls, it likely means that stock prices are falling. Stock prices are notoriously vulnerable to uncertainty. To put it simply, when shareholders panic, they may dump their stocks, which drives prices down.
Uncertainty is anything but scarce in the era of the Trump administration. In fact, Moody's Analytics has reported record levels of uncertainty week after week. Its uncertainty index reached its highest level ever last month. In other words, as long as the president continues to deal in shock value, Americans can expect the stock market to remain quick to respond.