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The Stock Market Has Rallied Since Trump's Election, But Some Worry It's An Illusion

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The Stock Market Has Rallied Since Trump's Election, But Some Worry It's An Illusion

Economy

The Stock Market Has Rallied Since Trump's Election, But Some Worry It's An Illusion

The Stock Market Has Rallied Since Trump's Election, But Some Worry It's An Illusion

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David Wessel, a senior fellow in Economic Studies at the Brookings Institution and director of the Hutchins Center talks about how the stock market has reacted to President Trump's policies so far.

LAKSHMI SINGH, HOST:

Investors are watching to see if the stock market rally that picked up momentum after President Trump's election stays the course. The Dow Jones Industrial Average had been steadily marching toward the 20,000 mark. And weeks ago, it topped that mark for the first time in the Dow's history. Other major stock indices have also been climbing, and businesses and consumers continue to have more confidence in the U.S. economy.

The big question is when or how will this post-inaugural honeymoon period end? To offer a little more clarity, we reached David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal. He joined us from the Brookings Institution studio, and he began by laying out the state of the financial markets.

DAVID WESSEL: The stock market is very happy. There has been a surge in stock prices since the Trump inauguration. It looks like the stock market is looking only at the Trump policies that are friendly to business - tax cuts, more infrastructure spending, less regulation - and ignoring the policies that business and companies definitely don't like, like all this hostility to trade. So that leads a lot of people to think that the markets are cruising for a bruising here, but predicting when the markets are going to turn and which direction is really well beyond me.

SINGH: Some worry that we're putting too much confidence in the markets and that this is sort of a bubble that could burst. Just reminding some of our listeners, Andrew Ross Sorkin, you recall, recently wrote in The New York Times DealBook, right? - that a well-respected hedge fund manager was warning his own investors that things could go badly pretty quickly. Do you recall that?

WESSEL: Yes, so there are a couple of possibilities here. One is the market is just guessing wrong, and they're going to discover that President Trump and the Republican Congress can't deliver the goodies or that they're going to get more of the baddies (ph). Another possibility - we know that markets kind of get euphoric, so there is a possibility there's a bubble. But that doesn't tell us very much about what's going on with the real economy. That just tells us what's going on in the minds of stock investors and traders.

SINGH: I mean, it's just too soon to say.

WESSEL: Well, it's always too soon to say about the markets. But look, there is something important here. Whether you like President Trump's policies or not, all the measures of business confidence, not only the stock market, but surveys, measures of consumer confidence have gone up a lot. And that's important because we know that when people feel better about the economy, when they're more optimistic, consumers are more willing to buy, businesses are more willing to invest. And that can become a self-fulfilling prophecy.

SINGH: What are you most concerned about going forward in this economy and the stock market? What are you looking out for?

WESSEL: I'm most worried that we are living a fantasy here, that somehow because President Trump has promised to do a lot of things that people are expecting something that can't happen. So my first fear is that if we have a manic high now, we're going to have a manic low. My second fear is that we are not doing anything to deal with our long-term chronic, problems in the economy. So we're going to squander this opportunity when the economy does seem to be relatively strong and strengthening to deal with long-term problems.

SINGH: Give me a couple of examples.

WESSEL: Well, even though the unemployment rate is well below 5 percent now, 1 in 7 men between the ages of 25 and 54, mostly too old to be in school and too young to retire, is not working. This is a whole set of people who have been basically chewed up and thrown out by the economy, and some of them may never come back - bad for them, bad for the society.

Second thing I'm worried about - the rate of productivity growth - that's how much stuff we make for every hour of work - has been painfully slow lately. Productivity growth is the reason we have more stuff than our grandparents without working more hours. We don't know why it's slowed, and unless we can get that up, we won't have rising wages and living standards for our kids.

SINGH: That's David Wessel. He's the director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal. David, thank you for your time.

WESSEL: You're welcome.

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