Could a Recession Derail the 2020 Trump Train?

With the stock market roiling through the month of October and now much of November, President Donald Trump lashed out at Democrats on Twitter early this week: “The prospect of Presidential Harassment by the Dems is causing the Stock Market big headaches!”

Quick to take credit when the stock market is going well, Trump is equally quick to point the finger elsewhere when it is not, which could hurt him in the long run. And many economists are pointing to a period of slowed economic growth, more market volatility and a possible recession leading up to the 2020 election.

He’s already presiding over the best economy in a generation, with record low unemployment and a 3.5 GDP this past quarter. And yet, it wasn’t enough to fend off Democrats in a struggle for a majority in the House of Representatives, with Democrats picking up 26 formerly Republican seats.

Per the Washington Post:

After adjusting for economic and stock market strength, it was the worst midterm performance for a president’s party in a century, according to Michael Cembalest of JPMorgan Asset and Wealth Management. “Based on the hand the GOP started with, they should probably have been able to retain the House. Sometimes, however, money can’t buy you love,” Cembalest wrote in a research note.

So is the economy that was a bit of a tail wind heading into midterms going to turn into a head wind in 2020?

The president will have to decide: Does he take further action to boost growth, or does he blame others for any slowdown?

Pessimism is growing on Wall Street about future prospects for earnings and the economy. More than a third of top economic forecasters now predict a U.S. recession in 2020, according to the latest Blue Chip forecast, and 44 percent of fund managers in the latest Bank of America Merrill Lynch survey expect global growth to slow in the next year, the worst outlook for the world economy since November 2008.

The list of head winds is expanding: higher borrowing costs, a strong dollar, a weakening global economy, an escalating tariff war, and fading fiscal stimulus from the tax cuts and extra government spending.

“Our forecast has [economic growth] stalling — that is, zero growth quarter on quarter — in the first half of 2020,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients. “Gravity can’t be defied forever.”

Investors mostly blamed Monday’s stock market drop on a global slowdown and the ongoing tariff fight with China, as even stock market darling Apple is showing signs of slippage. 

But Trump’s top advisers say a deal can be reached with China and they also expect the president to cut a deal with Democrats on infrastructure spending, two things that would be a major shot in the arm for the stock market and Trump’s 2020 prospects.

“If Trump could pull off a trade deal with China where they would make real concessions, I think you’d see the market go through the roof and the economy would soar. All those people saying the economy couldn’t last until 2020 would have egg on their face,” said Stephen Moore, an economic adviser to the Trump campaign.

The wild card, Moore also said, is if the president will make such a deal with China.

Horizon Chief Global Strategist Greg Valliere says talk of a recession is “grossly premature,” but Trump will feel pressure to cut deals if the stock market malaise continues or growth comes up short of projections next year.

“Trump will have plenty at his disposal to get the economy stronger as he seeks reelection. He could go for more stimulus or cut a deal with China that would make the markets happy,” Valliere said.