Noel Randewich –
US President Donald Trump has taken credit for the stock market’s gains during his nearly two years in the White House, and those claims are reasonable given the impact of tax cuts and pro-business policies on investor sentiment.
The S&P 500 has risen 28 per cent since Trump’s election in November 2016 to the eve of congressional midterm elections on Tuesday. This surpasses the market’s performance over the same time frame under any other president in the past 64 years. Under President Dwight Eisenhower, the S&P 500 rose 29 per cent from his election in November 1952 through November 1954.
Sweeping corporate tax cuts, an initiative driven by Trump, supercharged US companies’ earnings and helped lift the cash-rich technology sector. The Republican party last year passed the biggest overhaul of the US tax code in over 30 years, boosting US corporate earnings.
Still, other sectors that could have been expected to benefit strongly from a Trump presidency have lagged. Indeed, the individual stocks that have gained and lost the most during his reign have little discernible link to Trump’s presidency.
How the market shakes out in the final two years of Trump’s presidency will probably be influenced by Tuesday’s elections. Analysts expect pressure on stocks if Democrats gain control of the House of Representatives and a sharper downward reaction if they sweep the House and Senate. On the contrary, if Republicans hold their ground, stocks could gain further, with hopes of more tax reform ahead.
Trump’s strong stock market record has been maintained even after a recent pullback on Wall Street as worries about trade battles, inflation and rising interest rates have increased caution among investors. Starting in 2010 under President Barack Obama as the world recovered from the financial crisis, the S&P 500 has enjoyed its longest bull market in history.
With more than half of Trump’s presidency still to come, how the market will perform over his whole term is unknown. Democratic President Bill Clinton saw the S&P 500 triple during his two terms in the White House.
Average S&P 500 company earnings per share are on track to rise 24 per cent this year, the strongest annual gain in eight years, according to IBES data from Refinitiv.
Investor confidence stemming from the tax cuts and Trump’s other business-friendly policies so far have more than made up for ongoing worries on Wall Street that his trade conflict with China is hurting the US economy, and that it could become worse.
The tax cuts also led Apple and other multinationals in the technology sector to repatriate billions of dollars in profits held overseas, some of which went toward buying back stock and sending Wall Street higher.
The S&P 500 information technology index has gained 51 per cent since Trump’s election. Financials, which benefited from Trump’s deregulation of the banking industry, have climbed 34 per cent since November 8, 2016.
Still, some companies that had been expected to boom under Trump have fared poorly. The S&P 500 energy index is flat since Trump’s election, even though crude prices rose over 50 per cent during that time and despite Trump putting the brakes on Obama-era policies aimed at reducing the country’s reliance on oil.
Semiconductors have fared better than any other industry group, even though they are highly exposed to China and could become casualties in Trump’s trade war with Beijing.
Along with telecommunications, food and tobacco companies, automakers on average have fared worst among 27 industry group’s since Trump’s election. General Motors Co and Ford Motor Co have been wrestling for years with tepid global demand, with recent signs of a deep slowdown in China.
Industry groups are more detailed categories than the 11 sectors widely tracked on the stock market. — Reuters