What Wall Street Wants Donald Trump to Do to Save the Stock Market

donald trump
President Donald Trump participates in a meeting with the CEOs of major banks to discuss the coronavirus covid-19 response during a meeting in the Cabinet Room at the White House, on March 11, 2020 in Washington, DC. Mark Wilson/Getty

For three years, Donald Trump had boasted about the booming stock market, citing it as validation of his economic leadership. But Wednesday afternoon, when he sat in the White House with the CEOs of America's largest banks, the market was cratering in response to worldwide fears of the coronavirus. The White House's main policy proposal in response to the pandemic—a temporary elimination of the payroll tax for workers and companies—had been received unenthusiastically on Capitol Hill. Trump polled the executives gathered around the table; what did they want to see done? He meant economically, but one of the responses was telling: ''Take care of the health care problem: do more testing, build up the hospitals and we'll get through this," said Brian Moynihan of Bank of America.

In his Oval Office speech Wednesday night—perhaps the most consequential of his presidency—Trump tried to reassure Americans on both the health care and the economic fronts. The stock market's dramatic decline on Thursday—the Dow Jones Industrial average fell by ten per cent, or 2,352 points, its worst day since the 1987 crash— demonstrated that he had failed on both counts. As Democratic Congressional leaders Chuck Schumer and Nancy Pelosi pointed out immediately afterwards, Trump made only one vague reference to ramping up the number of testing kits available nationwide: the most important step the government now needs to take in order to diminish the spread of Covid 19. The president's coronavirus task force had said earlier it was getting 4,000,000 additional testing kits out into the country, not nearly enough in a country of 325,000,000 to get a sense of the problem's magnitude. Wall Street concluded that the Trump administration didn't grasp the magnitude of the problem. Futures markets plunged immediately following the speech, foreshadowing the disastrous day that followed.

The street was equally disappointed with the economic component of Trump's speech. He reiterated his desire for the payroll tax holiday until the end of the year; said the administration would push back the traditional April 15 tax deadline; and would add $50 billion to the Small Business Administration's lending capacity. Most Wall Street economists were happy with those ideas—but frustrated that the Trump administration didn't go nearly far enough.

What would help put a floor under plunging markets? Here's what business leaders told Newsweek they want to see.

A sense of urgency. The market's sharp declines are sending a message of no confidence to both the administration and to Congress. Trump's early happy talk about the virus—as recently as February 26th he said the number of cases in the United States was "going very substantially down, not up"— made it clear at the outset that he expected the problem would just go away. His wan speech on Wednesday night inspired no one. Earlier on Wednesday Iowa Senator Chuck Grassley made heads explode all over Wall Street when, in the midst of the market meltdown, he told a gaggle of reporters in the Capitol building: "We continue to assess the economic impact of it, and it doesn't look like it's anything to worry [about] now, but maybe one, two, three weeks from now, we'll have an indication that dramatic action has to happen."

"You wonder what planet these people are on," says bond trader Richard Gianelli.

Stop playing politics. Markets are frustrated with the drearily familiar partisan wrangling. "The politicking over the [Coronavirus] response in Washington is unbelievable," says Terry Duffy, chairman and CEO of the CME Group in Chicago, the world's largest derivatives and options market. Democrats criticize the payroll tax holiday as being too friendly to employers and upper income workers, and some propose instead an increase in the earned income tax credit, which is more worker-friendly. Wall Street's clear desire: do both, do everything, "throw the kitchen sink at it," as Terry Fratto of the Washington crisis management firm Hamilton Place Strategies says. But that's not happening. When it became clear that there was no bipartisan consensus between the Democratic-controlled House and the Republican-controlled Senate on Thursday afternoon, the stock crash accelerated.

Think big, right now. On Thursday the Federal Reserve showed it understood the gravity of the unfolding crisis. As erratic trading in U.S.Treasury bonds signaled the possible onset of a failure in credit markets—which, with its echoes of 2008/2009 would have been utterly calamitous in the midst of the coronavirus crisis— the Fed acted. It said it would introduce $1.5 trillion to the so-called repo market, which allows financial institutions to borrow short-term money cheaply to fund day to day trading.

The fiscal response needs to be as bold. Scott Gottlieb, Trump's former FDA chief, said, ''Congress needs to step in and fashion fiscal action that will help states and locales to break the chain of transmission." The only way to do that is through aggressive ''social distancing." Canceling NBA games and March Madness, for example, is a start.

That means the government getting funds to businesses and individuals that will be collateral economic damage from those decisions—think of waiters, cab drivers, restaurant owners and hotel workers—is paramount. Cutting checks directly to affected individuals and businesses is an option that many Wall Street economists favor. Trump's $50 billion addition to the Small Business Administration's lending authority helps, but the fear now is that much more will be needed, and assistance is needed far more quickly than the time it takes for the SBA to process loan applications.

That's why many Wall Street economists favor, in addition to the payroll tax holiday, the government cutting checks directly to low income Americans affected by the outbreak. This would be in addition to temporarily eliminating the requirement that an unemployed worker needs to be looking for work to receive unemployment benefits (a waiver which is in the House bill). At a moment when social distancing is required, going out for face-to face job interviews is impractical.

Given how important a fast fiscal stimulus is—Goldman Sachs CEO David M. Solomon told Trump Wednesday it's "really, really important"— big spending measures that would phase out as the crisis ebbs are what Wall Street is looking for. (Not surprisingly, no one at this point is worried about adding to an already huge budget deficit.)

Get FEMA in the game: On Friday Trump may invoke what's known as the Stafford Act, a 1988 law allowing the Federal Emergency Management Agency (FEMA) to provide massive direct assistance to states and localities that have suffered a major disaster. Wall Street would be all in for this move. It would provide more additional funding to states and localities that could decide where to spend the money. It's precisely the sort of thing former FDA Chief Scott Gottlieb is talking about, and Trump's executive branch can do it without waiting for Congress.

The equity market's collapse on Thursday was a message that Wall Street does not believe the Trump administration is responding appropriately to the coronavirus. By midday there were rumors that the White House might announce more steps to try to arrest the market rout and what will be a sharp recession this year. It was unclear what those measures might be. But after Trump's weak speech on Wednesday night, and the market crash that followed, Wall Street's message was clear: whatever the measures are, you'd better bring them on, big-time, and bring them on fast.