Don’t Credit Donald Trump For The U.S. Market’s Rise

If Barack Obama had taken credit for the stock market growth, I would have laughed. 

I’m doing the same now, with President Donald Trump.

During Obama’s eight-year term, U.S. stocks did well.  They continued to hit new all-time highs. From January 20, 2008 to January 20, 2016, U.S. stocks gained 220 percent.  That thumped international stocks, which gained 90 percent.

A president might have an impact on a country’s wealth.  But if they say, “I’m making the markets move,” we need to laugh it off. 

Over long time periods, stock market growth, including dividends, tracks business earnings closely.  But over short time periods they could be like passing ships. Sometimes stocks rise faster than business earnings.  Other times, business earnings rise, while stocks drag their feet.

It’s much the same with an individual business.  Take the pharmaceutical giant, Pfizer.  In 2013, the company’s net earnings were $9.49 billion.  In 2015, Pfizer earned $6.95 billion.  That’s a 27 percent drop.  But over the same time period, an investment in Pfizer’s stock grew almost 33 percent.

It sometimes goes the other way.  Business earnings rise; stock prices slide.  Long term, however, business growth and stock market growth will go hand-in-hand.  It’s the same for the market as a whole.

 

U.S. Stocks vs. International Stocks During Barack Obama’s Tenure

U.S. Stocks +220%

International Stocks +90%

Source:  Morningstar.com

 

Since Donald Trump’s presidency, international stocks have been leaving U.S. stocks behind. 

 

Donald Trump’s Presidency

U.S. Stocks vs. International Stocks

January 20, 2017 to December 4, 2017

U.S. Stocks +18.07%

International Stocks +20.85%

Source:  Morningstar.com

 

But don’t blame Trump. Obama didn’t create the previous market gain, any more than Trump was responsible for maintaining its momentum.

However, here’s where things get silly.  Imagine if these guys did deserve credit for how stocks performed.  Think of it as a two-man relay race.  Obama and Trump run on the same team.

Obama starts.  In the first two laps (2008-2010) he runs neck and neck with the other country’s runners.  But in the third lap (2011) he begins to pull away. By the fourth and fifth laps (2012 and 2013) he turns on the jets.  He continues to set a record pace during the sixth, seventh and eighth laps of the race.

On lap nine, he hands the baton to Donald Trump.  Trump runs a fast lap, but almost every other runner gains a lot of ground. Over the nine-laps combined, however, Obama and Trump broke a course record.  It would be goofy for Trump to say, “We broke the record because of me.” 

Strangely, that’s what he says about the stock market.  Speaking to reporters on Air Force One, while heading to Japan in November he said, “The reason our stock market is so successful is because of me.”

Remind me to never run a relay with the guy. I could double Trump’s speed.  But if we did well, he might take all the credit.

To be clear, neither Obama nor Trump was responsible for the stock market’s performance over the past nine years.  In fact, during Obama’s eight years (and Trump’s first year) U.S. stocks rose faster than the rate of corporate earnings.  By almost any measurement, that puts U.S. stocks on slippery ground.  At some point, they’re going to stumble or crash.  That doesn’t mean we’ll have a president to blame, any more than we’ll have a president to credit if the market keeps rising.

Many years from now, we might make longer-term connections between economic success and the president’s reign. But short-term market growth isn’t the yardstick we should use.  We need to look at business earnings.  We’ll need to compare them to the past and to other countries too.

Other measurements, however, deserve even more merit. Have literacy rates improved?  Are people living longer?  Are infant mortality rates lower?  Has unemployment dropped?  Have national and student loan debts decreased?  Are homicides lower?  Are we healthier overall and do we have less racial conflict? Much like the connection between stocks and a president, the true correlation might take years to unveil.

 

Andrew Hallam is the author of Millionaire Expat: How To Build Wealth Living Overseas and Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School.

 


internaxx special deal for andrew hallam readers

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

You may also like...

1 Response

  1. Daniel says:

    Another really important measure of progress is wealth inequality within a nation. From all accounts USA is quickly approaching the top of the list among all nations for wealth inequality. They are #4 right now after taxes and and transfers are taken into account. I believe a huge wealth inequality will lead to major political and social destabilization.


  2. wealthbar special deal for andrew hallam readers

Leave a Reply

For your privacy we strongly recommend you do not use your full real name. While your email address will not be published, it may reveal your photo or a recognizable image if it is associated with gravatar.com. It is strongly suggested you do not use a corporate or ISP email address. Before your comment is published you will receive an email asking you to confirm your email address. Select "Notify me of follow-up comments via email" to receive notifications of replies and be able to adjust your subscription. Published comments will not be deleted.

By clicking "Post Comment" you confirm you have read and agree to the conditions on the Legal Page; including the Privacy Policy, the Cookie Policy, and the Comments Policy.  We reserve the right to not publish comments that do not meet guidelines.