Shiller: Trump is the market’s great hope—and its greatest danger

Donald Trump may be the market's hero, but he could soon become its villain, warns Yale professor of economics Robert Shiller.

Considering the S&P 500's recent surge to record highs, Shiller makes the point that Trump's win has driven investors into the market, and that optimism about his presidency could continue to drive gains.

"I think the 'Trump rally' does reflect something about having a business-oriented president who promises to cut regulations and maybe corporate profits, taxes," Shiller said Tuesday on CNBC's "Trading Nation."

And even though "those things are already known … I still suspect there is more left in the Trump rally," Shiller added.

On the other hand, when the Nobel Laureate is asked what most worries him about the market, he brings up the president again.

It's possible that "Trump's quixotic personality will create some kind of crisis that will drop his approval rating much more — that's the main thing in the short run," he said.

More generally, Shiller senses "almost a kind of anxiety" surrounding Trump. "When I see the Trump supporters on television explaining themselves, I don't get a feeling of supreme confidence. They've created a revolution, and now maybe they're a little scared by it."

On Tuesday, stocks broadly suffered their worst trading day since the fall, in a 1.2 percent drop that many pinned on newfound pessimism over Trump's ability to make serious headway with his agenda. The Trump-endorsed Obamacare replacement bill appears in serious jeopardy, thanks to friction between the more right-wing and left-wing sides of the Republican party itself, on top of unsurprising Democratic opposition.

While health care is not topmost on many investors' minds, the mainstream thinking is that if health care doesn't get passed, more market-critical issues like taxation, deregulation and infrastructure spending will remain ensconced on the backburner.

More linearly, Trump's declining public appeal may be a bearish catalyst in and of itself. In a February report, the Credit Suisse equity strategy team made the point that Trump's favorability rating was highly correlated to the S&P 500. According to a Gallup poll released Sunday, the president's approval rating has fallen to 37 percent.

Speaking broadly about market sentiment, Shiller observed that "I don't think this is a particularly euphoric time," adding: "It is, I guess, for Trump voters who are enthusiastic about him, but I don't know that they feel that great at the moment with the way it has panned out so much."


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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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