• Equities have made good gains since Donald Trump was inaugurated
  • The gains are overshadowed by the returns under Obama and H.W. Bush
  • Their rally is mostly down to coordinated fiscal and monetary stimulus
  • It is disingenuous for the 45th President to seek all the glory

We are almost through a full calendar year of Donald Trump’s first term in the White House.

Of course, much of the first week in this New Year has been occupied by how accurate are the revelations in the book, “Fire and Fury” by Michael Wolff. That and the ongoing investigation into links with Russia may well overshadow the President’s political performance ahead of the mid-term elections in November. However, the U.S. equity markets have powered ahead to new record highs.

The President has this week, as he frequently did throughout 2017, sought to take the credit for the equity market rally. He came into office looking to cut back red tape which was restraining business and the latest surge appears to be driven by the belief that the tax code changes will reinforce corporate America’s ability to book solid earnings and deliver on the bottom line. So, to be fair, his policies have played some part.

Still we cannot ignore the fact that the gains in the Standard & Poor’s 500-stock index since Trump took office do not match the market’s gains during the first year of the presidencies of Barack Obama and George H.W. Bush.

S&P 500 243 Days Pres 1st Term 08-01-18

Source: Thomson Reuters


President Obama took office on January 20th, 2009 as the global financial crisis was really getting into its stride. The problems had magnified from sub-prime mortgage lending in the U.S. to the fact that many international financial institutions were exposed to collaterised mortgage products and credit default swaps that were virtually worthless. That plus the brewing sovereign debt crisis in the Eurozone had created a terrifying downward spiral.

The equity markets across the world were sliding on a daily basis and did not reach a low until a month later. They only began to rise because of the global coordination of stimulus, both fiscal and monetary. Indeed, in the first 243 trading days since Obama took office the S&P 500 Index was higher by 33.7%. In contrast in the same period of the Trump presidency, the index has gained 21.2%.

Reality check

President Trump assumed office when the global recovery was established, and monetary policy accommodation had permeated many areas of the economy. In the past year his only political success has been the tax reform.

Much of the ongoing rise in the equity market is based on the recovery in global economic growth and the steadily increasing level of global consumer demand. Yes, the United States is growing at a healthy clip, however, so is Europe, Japan, India and it is hoped that China can engineer a stable growth path as it addresses it rising debt problem.

A great deal of the reason for equities ongoing improvement is down to growth synchronisation and rising, but manageable inflationary pressures.  There is no need for a sudden and unexpected hike in central bank rates.

All this sums to good news for equities, far more so than the policies of the 45th President.

Long Bull-Run

At more than 3,200 days and counting, this nearly nine-year bull market run trails behind only the rally from 1987 to 2000, certainly with Wall Street analysts looking for double digit earnings the current momentum suggests the market could climb further.

It is well known that many politicians like to be associated with success stories and seek to shy away from failure. After-all, for most political animals, the main question is “What must I do to get re-elected?”

That said, history shows that it’s somewhat unusual for any President to nakedly seek the credit for stock market performance. Not so with the 45th President. Look across his Tweets and speeches. One can see that President Trump has hailed the success of the market as a direct result of his actions.

Currently, volatility is low and so there is no immediate flashing light to suggest the markets are about to turn lower in an aggressive manner, however, one wonders what he would say if the markets did start to top out?


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