When the current administration took office they declared the performance of the stock market is how they should be measured on the economy. Lately there has been quite a bit of credit being claimed by the White House that the new market highs are due to them. Let’s take a closer look to see if the market rally is due to them or whether there is more to the story.
- The market’s initial reaction to the election was a quick increase (after futures immediately crashed once the results were in). Many analysts believe this was due to expectations there would be significant regulatory rollbacks, tax reform and infrastructure spending. I would say by the time summer arrived this year those expectations were scaled back quite a bit, yet the market continues to climb.
- Although having the same party controlling the White House and Congress makes it easier for legislative changes, the history of the market is it performs slightly better when one party controls the White House and the other controls Congress. This division was in place for most of the previous administration’s tenure and the market nearly tripled even as sarcastically stated by Barry Ritholtz “after America elected as president a Kenyan-born, Marxist Muslim bent on destroying capitalism and the US economy.” It’s almost as though the market doesn’t care about one party being in charge.
- I saw a tweet recently how every nation’s market is up this year, except for Russia. International and Emerging Market performance have been greater than the US market’s performance. Apparently the market does not believe there will be any type of international trade war or even a North America one.
- There is no argument that certain sectors have done well since the election. Financials are up nearly 20%. The easy CNBC-like explanation falls back on expectations US banking regulations will be relaxed. During this same period the European financial index has returned nearly 32%. Somehow even after the Brexit vote the European financial market has outperformed their US cousins. Not bad for a bunch of supposed socialists.
- While the market has been climbing since 2009 there have been some consistent themes. Interest rates hit all-time lows and have continued to stay low. Inflation continues to stay low, maybe too low, but it helps us when we hit the grocery store or head on vacation. More people are joining the workforce every month. The US dollar is weaker which drives demand on the consumption of US products outside our borders. The world economy is getting healthier (again, see previous point about US exports). US companies rely less on just the US for their sales and profits (again, see previous point about the global economy improving). And one final point, earnings continue to be strong for corporations.
Does this mean we are in the all-clear? Who knows? The market is the great equalizer and will let you know who is right and who is wrong. My point is maybe it is less about who is in the White House and who controls Congress and more about the underlying fundamentals that dictate the market’s performance.
All I know is before the election the current president declared the stock market was in a bubble. I guess when you become president your narrative may need to change so you can claim credit for a rally that may be happening despite of you instead of due to you. Of course, when the market pulls back, which it always does, whose responsibility is it then? Tag – Not It!