Since November 8, Election Day, the US stock market has gained nearly 4 trillion dollars in market value.
To hear the President tell it, the entire rise should be attributed to his actions, but just how much has the stock market gone up? And is the President responsible for the increase in the stock market?
According to Time magazine, in Trump’s first 100 days the S&P 500 gained 5.5%. That’s a very decent performance, even when pitted against the first 100 days in office of other presidents. When you crunch the numbers, it turns out Trump comes in fifth place, with George H.W. Bush and Barack Obama right above him. From January 20th, 2017 to Oct 20, 2017, the S&P 500 has returned about 15%. That is very impressive. The previous president saw a nearly 38% increase in the same time period, but 15% is nothing to sneeze at either.
How much of this should we attribute to the president?
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Trump has yet to truly fulfill any of his promises regarding infrastructure and tax cuts. These promises were said to be driving the stock market surge post-election. It’s not out of this world to believe that the confidence gained from these promises drove prices up. Stock markets rise and fall with consumer sentiment so why not here?
The stock market has also, historically, moved along with the four-year presidential election cycle. In the first year of a president’s first term, the market tends to move up, at an average return of 8.2% (1900-2015). Since World War II, the average return in the first year of a US president’s inaugural term is a little lower, at 6.2%.
Another thing to keep in mind is that elections are often decided by how the economy is doing. If the country is doing well, Americans will tend to keep the incumbent in office for a second term. If the economy is hitting a road bump, then Americans tend to ask for change. According to Forbes, more than 80% of the time, the incumbent party wins when markets are climbing in the months leading up to the election. For reference see Barack Obama’s victory in 2008, taking office after George Bush and a turbulent stock market leading up to the election.
It is true that the incumbent party lost this time around, with the markets flat to declining in the lead up to the election. So where does that leave us?
Here’s what we do know. Elections and stock markets can be influenced by human emotion and some element of herding behavior. The euphoria around a presidential election seems to drive stock markets up, as the data show. It would seem Trump’s case is no different, even if his stock market bump outperforms the average. It does help him that he takes office on the back of a multi-year stock market bull run. He has momentum working in his favor.
The other thing we do know is that the health of the actual economy matters. If policy is enacted that can affect the economy, then the stock market will follow. If no policy specifically targeting the economy is put in place then Trump is merely taking credit for market forces that would create stock market surges, surges which would happen with or without him.
What has Trump done for the economy?
The truth is, with Trump, very little policy has been enacted.
According to CNN, Trump signed 53 bills into law between his inauguration and the end of August 2017. “In all, two of the laws has created a new policy, 15 have rolled back rules and regulations issued under Obama’s administration, 10 had to do with designating something or working to create a new initiative, 11 changed or expanded existing legislation, and 15 were related to government funding or operations.”
The Obamacare repeal is currently struggling to get through, and the infrastructure and tax reform bills seem to be going nowhere fast. Alan Blinder, professor of Economics at Princeton, says that “in terms of Economic policy Trump has basically done nothing besides cutting back regulations in a minor way.” The other thing to keep in mind is that economic policy is the type of thing that can cause stock market surges due to anticipation at first, but the real benefits take years and maybe even decades to realize.
On the face of things, everything looks rosy. Jobs growth has increased under Trump’s reign. Unemployment has continued to go down, and the stock market bull run continues unabated. These are all good signs, but how much of it has roots that stretch back to policies and reforms enacted under Obama in response to the Great Recession in 2008? With a stock market run-up that has lasted nearly a decade, the second-longest on record, how much longer does this bull market have to run? Is it simply running on fumes, fumes that Trump is happy to take credit for?
When it comes to examining history, there are two competing views. One of the Great Man Theory, where the course of history is explained by the impact that great men have had through their individual influence. Winston Churchill, Alexander the Great, etc.
The other view is that history is really a result of macro-trends and social forces that culminate in the events that we then study afterward.
In the sense that any and every president has an effect on the stock market through market forces bigger than he, then yes, Trump can claim responsibility for stock market gains. But so could any president. However, it’s not as sexy when you couch it in those terms, is it?