President Trump has boasted more than 60 times about the performance of the stock market since voters elected him in 2016. But the boasting may be over.

Since the day Trump won the election, the S&P 500 index (^GSPC) has risen 32%. But almost all of that gain came by January 2018. Since Jan. 26, 2018, the S&P has fallen 1.7%. For the last 16 months, the stock market has gone nowhere.

Coincidentally or not, Trump announced his first protectionist tariffs in January 2018, on imported solar panels and washing machines. He followed that with new tariffs on imported steel and aluminum, and half of all imports from China. China and other countries retaliated with their own tariffs on U.S. imports. Trade hostilities aren’t the only factor affecting stocks, but the correlation between a stalled market and Trump’s tariffs is unmistakable.

There have been peaks and valleys during the last 16 months, creating the impression of a continuing rally. The S&P hit a new record on Sept. 21 of last year, which Trump bragged about on Twitter. It hit another new high on April 30 of this year, as Trump expressed amazement. “You mean the Stock Market hit an all-time record high today,” he tweeted, “and they’re actually talking impeachment!?”

Sharp selloffs amid those record highs mitigated the gains, however, which is why the market is up 13% for 2019 but flat since last January. If you were lucky enough to buy during the selloffs, you made money. But if you’re holding an S&P 500 index fund, you’ve earned nothing but dividends since early 2018.

Trade dispute to blame

Nobody knows where the stock market is headed, but there are plenty of signs it may have topped out—with Trump somewhat responsible. His trade dispute with China has clearly depressed stocks since May 5, the day Trump announced he was adding new tariffs on Chinese imports. China retaliated the following week with its own new tariffs on U.S. imports. This was the escalation scenario trade experts have been fearing—and it has sent the S&P down 4% so far.

Markets still seem to think Chinese and American negotiators will get back together after a “cooling-off period,” and hammer out some kind of deal. That would probably generate a relief rally in stocks. But a deal would require one side to give in on key demands, which each has now signaled it is unwilling to do. Moody’s Analytics puts the odds of a deal at 60%, with the odds of a standoff or more damaging escalation at 40%.

A trade deal wouldn’t necessarily eliminate the new tariffs both sides have put in place. In fact, Trump has talked about leaving the 25% tariffs on $250 billion worth of Chinese imports right where they are, as a way of enforcing the terms of the deal, or maybe just because he likes tariffs. That would disappoint markets, since the optimal trade deal is one in which everybody makes nice and all punitive tariffs disappear.

Can the US endure the stress better than China?

The Trump tariffs are a tax that will cost the typical American household $831 per year, according to the New York Federal Reserve. That burden isn’t enough to cause a recession or stock-market correction on its own, but it cuts into growth as it is slowing rather than accelerating, raising the risk of conspiring downward pressures.

Trump’s calculus assumes the U.S. economy can withstand the stress of a trade war better than China’s can, and he may be right about that. But Trump may also be complacent about an economy that has been surprisingly resilient since he took office and never forced him to reckon with a real risk of recession. That won’t last forever.

Activity in the manufacturing sector recently dropped to a 10-year low, and that was before Trump raised the ante with China by raising tariffs, which could hurt U.S. manufacturing more by making components costlier. Durable-goods sales fell by more than expected in April. Bond-market yield curves have been warning of trouble. “The U.S. economic slowdown and rising recession risk is happening regardless of the trade outcome,” Morgan Stanley argued in recent research. “U.S. earning and economic risk is greater than most investors think.”

The job market remains strong, but layoffs have ticked up this year, with Ford recently announcing plans to axe 7,000 workers. General Motors eliminated 14,000 jobs late last year. Car sales have plateaued, and since the auto industry is highly cyclical, it may be signaling a slowdown coming, or worse.

If recession risks do appear imminent, the Federal Reserve can cut interest rates to stimulate the economy, which Trump has been jawboning the Fed to do. But if the Fed cuts rates to aid a weakening economy, it could alarm investors and push stocks down, instead of inciting a rally. “A potential Fed rate cut would be less positive for stock prices than many investors believe,” Jonathan Golub, chief US equity strategist for Credit Suisse, told clients in a recent note.

The bull market in stocks began in March 2009 and is now in its 11th year. The biggest gains came during President Obama’s first term, from 2009 to 2013. Gains slowed during Obama’s second term, and then slowed a bit more under Trump. So it’s not surprising that a long rally has flatlined. And a pullback of 20% or more, which would end the current rally and set the stage for a new one, will happen eventually. Trump assumes it won’t happen on his watch, but he also assumes his own policies won’t harm markets or the economy. Markets may be telling him otherwise.

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Read more:

Where Obama beats Trump on the economy

What GM wants from Trump on trade

Trump’s low threshold for stock-market pain

How Trump is blowing it with voters

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman

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