Dow drop highlights 2016 risk for Clinton

Financial markets opened 2016 with a brutal drop, signaling concerns about global economic instability that could spell trouble for White House hopeful Hillary Clinton as she promises to build on President Obama’s economic legacy.

In the first trading day of 2016, the Dow Jones industrial average dropped by 450 points before closing down 275 points.{mosads}Monday’s sell-off, spurred by concerns about China’s economic slowdown and tension in the Middle East, follows a raucous end to 2015 that saw several strong swings in financial markets. And it drives worry about the strength of the global economy at a critical juncture, both economically and politically.

{mosads}Monday’s sell-off, spurred by concerns about China’s economic slowdown and tension in the Middle East, follows a raucous end to 2015 that saw several strong swings in financial markets. And it drives worry about the strength of the global economy at a critical juncture, both economically and politically.

While the U.S. economy has grown steadily and unemployment has fallen, public dissatisfaction with the economy lingers, thanks in large part to stagnant wages and growing income inequality.

“The one thing that everybody’s been waiting for is that fulcrum where wages start to rise,” said Daniel Alpert, managing partner at Westwood Capital. “We haven’t gotten there. We’re not getting there. It’s not happening.”

That leaves politicians, particularly Clinton, the top contender for the Democratic presidential nomination, in a tough economic spot to open the year.

The former secretary of State has sought to carve her own economic path and has vowed to advance Obama’s fiscal policies. But if the U.S. economy looks weaker in Obama’s final year in office, it could weigh on her campaign to win a third consecutive Democratic term in the White House.

“Secretary Clinton does not want to be seen as overly critical of the Obama administration, but at the same time you can’t have a tin ear if the economy is weak,” said Brian ­Gardner, senior vice president at Keefe, Bruyette & Woods. “It puts her in a slightly awkward position.”

For the time being, Democrats can point to a string of solid data to buttress Obama’s record. The economy grew 2 percent in the third quarter of the year, after 3.9 percent growth the quarter prior. And the unemployment rate has steadily fallen, to 5 percent.

But with Americans still not seeing much of that economic growth in their paychecks, running on those accomplishments could be a challenge. At best, it may just blunt an attack from rivals, rather than being a strong asset.

And if things take a turn for the worse in 2016, it could open up a new avenue of attack.

Further complicating matters is the Federal Reserve, which is trying to return to a more normal monetary policy by raising interest rates but is keen not to upend the recovery. The central bank will be closely watched throughout 2016, after it finally raised rates last month for the first time in nearly a decade. A Fed misstep could hurt the U.S. economy.

With the year just underway, some on Wall Street are making dire predictions. Blackstone’s Byron Wien predicted Monday that the stock market would be down in 2016, driven by economic struggles both in the U.S. and abroad. Wien also predicted that Clinton would win the White House.

C. Fred Bergsten, senior fellow and director emeritus at the Peterson Institute for International Economics, noted that an economic slowdown can bruise both parties. With a number of Senate Republicans facing competitive races, economic struggles on their watch could also weigh down their reelection prospects.

And timing could be a critical factor as well. During primary season, the economy could be less significant. Clinton enjoys a healthy lead on the Democratic side, and Republican primary voters are placing an increased emphasis on fighting terrorism and national security, rather than the economy.

Several campaign observers drew comparisons to 1992, when Bill Clinton defeated then-President George H.W. Bush. The U.S. economy grew a healthy 3.6 percent that year. But much of that growth came in the second half of the year, after voters had already decided that Bush was coming up short.

“The second-quarter numbers, which come out around the end of the summer, those are the numbers that seem to implant in people’s heads,” said Bergsten. “People thought there was a recession and that really helped Clinton. But there was no recession at all.”

If the economy under Obama begins to struggle in 2016, it could be difficult for Clinton to capitalize on the U.S.’s strong economic progress during her husband’s presidency.

“There are a lot of voters in the country who were not eligible to vote when President Clinton was in office,” said Gardner. “Every election is about the future, and when you’re looking back 16 years, that’s not a great message.”