WASHINGTON — President Donald Trump displayed a shaky grasp of how the stock market works when he weighed in Wednesday on the big slump earlier in the week.
TRUMP: “In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”
THE FACTS: That simplistic statement shows a misunderstanding of the relationship between economic indicators and the market. It’s not true that a positive development for the economy necessarily means a rise in stocks. The opposite can happen, depending on what sort of chain reaction is anticipated by investors.
READ MORE: Why Donald Trump has little influence on rising or falling stocks
The market dive was prompted in part by the news that wages are rising at the best pace in eight years after a prolonged bout of sluggish gains. Higher wages can lead to more inflation. The Fed could try to restrain inflation by raising interest rates, which would hurt corporate profits and limit the pace of economic growth. That’s how good news for workers can come with a downside for investors.
WATCH: The stock market has been on a wild ride – here’s what you need to know
Likewise, bad news can make the market rise. In 2016, for example, the Labor Department initially reported that employers added a mere 38,000 jobs in May. After slipping that day, the Dow Jones industrial average climbed the next trading day. A weak jobs report can cause stocks to dip briefly, then surge the following days on the belief that the Fed will hold off on rate increases.
WATCH: Trump says 2018 ‘off to a very great start’ with tax cut, stock market
Trump’s tweet broke his silence on the plunge in the market Monday as the Dow Jones industrial average suffered its biggest one-day drop ever, partly recovering Tuesday. Before that, he repeatedly took credit for market gains.
The government reported Friday that the economy created 200,000 jobs in January and that wages grew at the fastest pace in eight years.