Markets face fresh uncertainty after a $1 trillion wipeout
Experts warn that Trump's firing of a top economic data official undermines trust in U.S. markets and could hurt long-term investment
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U.S. stocks rebound Monday morning after a wipeout to end last week. The Dow Jones Industrial Average rose 365 points, or about 0.8%, while the S&P 500 surged 1.1% and the Nasdaq added 1.5%.
The VIX volatility index retreated 11%, suggesting some easing of market anxiety immediately after one of the most turbulent trading sessions in months.
The tentative recovery follows Friday's market carnage, when all three major indices posted their worst daily declines in months. The S&P 500 plunged 2.4% in its steepest drop since late May, while the Dow slumped 2.9% and the Nasdaq shed 2.2%. All in all, it represented a market pullback likely totaling over $1 trillion.
Forces behind the selloff
The selloff was triggered by a devastating jobs report showing only 73,000 positions added in July — far below expectations — combined with massive downward revisions erasing 258,000 jobs from May and June totals.
The political upheaval that immediately followed only exacerbated the uncertainty. In an unprecedented move, President Donald Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer the same day, accusing her without any evidence of manipulating job numbers for political purposes.
The firing drew sharp criticism former Trump-appointed BLS Commissioner William Beach, who warned the New York Times: “This could set a precedent where bad news on many different fronts is a reason for dismissing a person." Erica Groshen, who lead the BLS under President Barack Obama, went even further: “It undermines the integrity of our statistical system and really all of government data and science,” she told the Times.
Former Treasury Secretary Janet Yellen said, “This is the kind of thing you would only expect to see in a banana republic."
In a weekend memo, JPMorgan characterized the firing as introducing "risks to the conduct of monetary policy, to financial stability, and to the economic outlook."
Trump 'waving away economic reality'
“The truth is that the jobs numbers have become more volatile in recent years because of declining business survey response rates,” Allysia Finley wrote Sunday in the Wall Street Journal. “It’s similar to the problem political pollsters face getting representative samples. And Mr. Trump’s trade and immigration policies may be making monthly data less reliable.”
“Mr. Trump does himself and his party no favors by waving away economic reality,” Finley concluded.
Speaking to Quartz on Monday morning, hedge fund manager Spencer Hakimian warned of longer-term structural damage: “We are slowly deteriorating the credibility of government data, and this will backfire in the form of higher borrowing costs, less investment into the U.S., and the need for alternative sources to provide the public with accurate data.”