The morning after Donald Trump was elected President, liberal economist Paul Krugman penned an emotional op-ed in The New York Times claiming that the U.S. stock market would “never” recover from Trump’s surprise victory. Krugman was wrong, of course. Two years removed from his inauguration, stock market results have been strong under Trump, despite the massive market correction in the fourth quarter of 2018.
Krugman’s doom-and-gloom assertion was ill-advised, but somewhat understandable considering how badly stock market futures cratered the night of the election; at one point, Dow futures were down more than 800 points! But investors came to terms with a Trump White House much quicker than Krugman had forecast: stocks were actually up the first day of trading after the election. Despite a rough 2018, the net stock market results have been positive during Trump’s first two years in office.
Cabot Stock of the Week brings you:
Cabot Stock of the Week brings you:
A conservative-leaning friend of mine brought up Krugman’s wayward post-election assertion recently, scolding the economist for his obviously partisan bias in making such a bold claim in a publication as revered (at least by most) as The New York Times. So, in the name of balance, I thought it might be interesting to compare Trump’s stock market results in his first two years in office to the first two years of Barack Obama’s first term.
Two things to note: Prior to researching these results, I did not know (though I had a pretty good idea) how Trump and Obama’s early presidencies would stack up. Also, I used their inauguration dates as the measuring stick, giving us a solid 24 months of data.
Here’s what I found in each of the three major U.S. stock market indexes:
Early Stock Market Results (first two years after election)
Dow Jones Industrial Average
Across the board, Barack Obama has had better stock market results in his first two years as President than Donald Trump. The starkest differences are in large-cap stocks and growth stocks, as the returns in the S&P 500 and the Nasdaq in Obama’s first two years were more than double the run-up in those indexes in Trump’s first two years.
As with everything in the stock market, however, context matters. President Obama was elected in the midst of the worst economic downturn America has seen since the Great Depression, and he took office about six weeks before the market bottomed. Trump was elected amid almost universal U.S. growth: rising GDP, escalating home prices, and an unemployment rate (4.8%) that was less than half its late-2009 nadir (10%). So it’s far from an apples-to-apples comparison.
Obama essentially took office at a bottom, with nowhere to go but up. Despite being outgained by Obama in his first two years, the strong stock market performance since Trump’s election proves that the daily noise projecting Trump’s poisonous effect on stocks was not only overstated; it was simply incorrect.
Investors Ignoring Trump Drama
The truth is, Wall Street has tuned out most of the drama surrounding Trump. The behind-the-scenes Russia investigation, the revolving door of Trump’s Cabinet, multiple former Cabinet members going to jail, his war of words with North Korea (extinguished for the moment), his often combative rhetoric on Twitter, the controversial Kavanaugh hearings—none of it has mattered much to investors, at least not for more than a day or two. The only Trump-related controversy that has impacted markets is the ongoing trade war with China, but the tariffs have put a much bigger dent in Chinese stocks (and other emerging markets) than U.S. stocks – though the domestic impact was of the trade war seemed quite profound the last three months of 2018.
In the aggregate, very little of Trump’s bluster has scared investors away. Wall Street is instead focusing on the bottom line: an unemployment rate (3.9%) just off its lowest point in a half-century, earnings growth reaching six-year highs in 2018 thanks to lowered corporate tax rates, GDP growth at four-year highs, etc.
They’re nowhere close to the first two year’s of Obama’s term. But the net stock market results indicate that (so far at least) investors largely approve of Donald Trump as President. We’ll see what those results look like two years from now.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post was originally published in 2017 and is periodically updated.