Trump's role as driver of stocks is debatable
In the 1,456 days of Donald Trump's presidency, corporate taxes were cut, a trade war was fought, the COVID-19 pandemic raged — and the largest American companies added near US$9 trillion in value.
Up 55 per cent since Election Day 2016, the S&P 500's return is the fourth-best for a first-term president, data compiled by Bloomberg show. It's a feat that appeals to a president who has graded and flaunted his success using points on the Dow Jones Industrial Average.
Deciding how much credit he deserves for the run is one of the most debated topics in markets.
Trump's corporate tax cut indisputably buttressed bottom lines, but monetary policy has also been extraordinarily accommodative during his administration.
The president inherited a booming economy from Barack Obama, whose terms coincided with only slightly smaller gains in the S&P 500 than his successor.
In the end, stocks did what they almost always do over any period as long as four years — go up.
“Whether you're talking Obama or you're talking Trump or whoever, it's hard to link that back to a president,” said Nathan Thooft, Manulife Investment Management's head of global asset allocation.
“They're just one person among many people that are making decisions at the governmental level, let alone all the non-government related things that are actually driving the stock market.”
Below are views from professional investors on how to frame Trump's role in the market.
CREDIT I S DUE
During Trump's term, says Brian Nick, chief investment strategist at Nuveen, a friendly Fed inspired confidence, and valuations played a large role as well. As far as stock prices are concerned, Trump deserves credit for slashing the corporate tax rate in early 2018.
But Nick points to another corner of the market — the technology sector — as evidence no single human was responsible for the runup. U.S. companies like Apple Inc. and Facebook Inc. were already large going into Trump's presidency, but they've since firmly entrenched themselves as market leaders.
DEREGULATION ELATION
The Trump administration has relaxed many regulations, rolling back, for instance, restrictions on offshore oil and gas drilling and scaling back environmental rules.
Though it's tough to quantify the direct impact on stock prices, the loosening has been a key driver of returns, says Anik Sen at PineBridge Investments.
RIPPLE EFFECTS
To Quincy Krosby, chief market strategist at Prudential Financial, there are two obvious ways to see the president's market impact.
First, the rollback in regulations that had held back small and midsized businesses, and second, the tax cuts that brought corporate rates more in line with the rest of the developed world. “It was thoroughly pro-business,” Krosby said. “It did help the market.” Though some say the tax reductions helped goose company buybacks and dividends in lieu of capital expenditures, share repurchases matter for companies' earnings per-share, she said.
Buybacks remain a hotly contested topic within many market circles, but if they helped push stocks higher, then the ripple effects will have been felt in pension funds and IRAs.
J UST ONE FACTOR
Craig Fehr, an investment strategist at Edward Jones, says there's no denying some of the Trump administration's policies helped spur a sizable run for stocks.
But in his view, a larger role was played by trends that would guide markets during any administration.
In the post-war period, rarely have stocks declined over four-year presidential cycles, Fehr noted.
Presidents, he says, are one factor and don't dictate markets over longer periods.
EXTENDING THE BULL RUN
While Manulife Investment Management's Thooft says it's virtually impossible to link equity returns to the president alone, he also acknowledges corporate tax reform flowed directly through to companies' earnings.
He estimates that accounted for roughly half of stock returns under Trump, and helped extend the economic recovery and equity bull market.
MARKET I S BULLISH
Randy Frederick remembers clients asking him in the depths of the 2008 financial crisis if they should move into cash.
Frederick, VP of trading and derivatives at Charles Schwab & Co., has gotten similar inquiries in recent days in regards to the election.
His advice? “Your best bet is to just stay in,” he said. “If your time horizon is long enough, the market is always bullish.”