Trump stock rally mostly ben­e­fit­ing the best-off

Kuwait Times - - BUSINESS -

As the Dow nears 20,000 amid a Trump rally, long­time fi­nan­cial in­sid­ers see a dif­fer­ence com­pared with prior Wall Street land­marks: very lit­tle in­ter­est from the gen­eral pub­lic. Other mile­stones, such as when the Dow hit 10,000 in 1999, were ac­com­pa­nied by wide pub­lic dis­cus­sion and cel­e­bra­tion in the na­tional me­dia and at cock­tail par­ties.

“You’re not see­ing that now,” said JJ Ki­na­han, chief mar­ket strate­gic at TD Amer­i­trade. “At that time, it was al­most pure eu­pho­ria at ev­ery­thing go­ing on in the mar­ket.” The dif­fer­ence in mood re­flects the fact that, com­pared with past bull mar­kets, the av­er­age Amer­i­can is less in­vested in the stock mar­ket and there­fore not privy to-or a ben­e­fi­ciary of-the im­pres­sive gains in the Dow since elec­tion day.

“You’ve got to have money to be in the mar­ket in the first place and if you have been in the mar­ket, you’ve done ex­traor­di­nar­ily well,” said Benn Steil, di­rec­tor of in­ter­na­tional eco­nom­ics at the Coun­cil on For­eign Re­la­tions. “This is part and par­cel of the wider of is­sue of in­equal­ity.”

Mid­dle class in­vestors miss out

Par­tic­i­pa­tion in the stock mar­ket fell to an all-time low of 52 per­cent in 2016 from a peak of 65 per­cent in 2007, ac­cord­ing to a Gallup sur­vey re­leased in April. Gallup at­trib­uted the drop to the Great Re­ces­sion which dented the pub­lic’s abil­ity to in­vest, as well as its con­fi­dence in the stock mar­ket as a worth­while place to put funds.

The big­gest hit was in the mid­dle class, those with earn­ings be­tween $30,000 and $75,000, whose par­tic­i­pa­tion plum­meted to 50 per­cent from 72 per­cent. “Fewer Amer­i­cans-par­tic­u­larly those in mid­dlein­come fam­i­lies-are ben­e­fit­ing from the re­cent gains in stock val­ues than would have been the case a decade ago,” Gallup said.

Low-in­come Amer­i­cans are even less in­vested. Amer­i­cans mak­ing less than $50,000 rep­re­sent 51 per­cent of the pop­u­la­tion, but make up just 25 per­cent of the in­vestor pop­u­la­tion, ac­cord­ing to a re­port by the Fi­nan­cial In­dus­try Reg­u­la­tory Au­thor­ity. The Dow’s flir­ta­tion with 20,000 marks the lat­est psy­cho­log­i­cal mile­stone in the multi-year bull mar­ket since the in­dex bot­tomed out in Septem­ber 2009 at un­der 6,600 points.

The lat­est rally was spurred by the Repub­li­can sweep on elec­tion day which brought with it ex­pec­ta­tions for tax cuts, reg­u­la­tory re­form and mas­sive pub­lic works in­vest­ment ex­pected to boost the econ­omy and cor­po­rate prof­itabil­ity. The Dow has risen 8.2 per­cent since elec­tion day. But on Fri­day, the in­dex re­treated slightly to 19,843.41, due in part to profit tak­ing in bank­ing shares and some other sec­tors that surged af­ter the elec­tion.

Fur­ther profit-tak­ing could de­rail or at least de­lay the Dow’s march to 20,000. But some an­a­lysts think a “Santa Claus” rally could lift the in­dex above that level, as the hol­i­day sea­son brings good cheer, and low trad­ing vol­ume that make big moves more likely.

Cabi­net of CEOs

The mar­ket believes “there is now an abil­ity to af­fect change like there hasn’t been in many years,” said Brief­ an­a­lyst Pa­trick O’Hare. In­vestors are en­thu­si­as­tic about the like­li­hood of a pro-busi­ness agenda af­ter Pres­i­dent-elect Don­ald Trump’s ap­point­ments of a host of busi­ness ex­ec­u­tives to key roles.

The picks in­clude for­mer Gold­man Sachs ex­ec­u­tive Steven Mnuchin as trea­sury sec­re­tary, ExxonMo­bil chief ex­ec­u­tive Rex Tiller­son as sec­re­tary of state and fast food ex­ec­u­tive An­drew Puzder as la­bor sec­re­tary. But the mar­ket is ig­nor­ing lin­ger­ing ques­tions about po­ten­tially ad­verse out­comes un­der Trump, such as a trade war with China, or an in­ter-party war with con­gres­sional Repub­li­cans who may balk at as­pects of Trump’s eco­nomic agenda, an­a­lysts said. “I can un­der­stand why peo­ple who own most of the stocks are op­ti­mistic based on a busi­ness­man pres­i­dent ap­point­ing mostly busi­ness­man,” said Richard Sylla, a pro­fes­sor of the his­tory of fi­nan­cial in­sti­tu­tions and mar­kets at New York Univer­sity Stern School of Busi­ness. “I don’t think the eu­pho­ria is go­ing to ex­tend much be­yond the be­gin­ning of the year.”

Josh Bivens, re­search di­rec­tor of the la­bor-backed Eco­nomic Pol­icy In­sti­tute, said the stock rally was trou­bling be­cause it was based not on broadly en­joyed eco­nomic growth, but on ex­pec­ta­tions of poli­cies that will ben­e­fit large banks and other mon­eyed in­ter­ests. “Cor­po­rate own­ers and man­agers have done re­ally well over the last 30 years, whereas the vast ma­jor­ity of work­ers have not and I would like to see pol­icy weigh in on the other side of that,” Bivens said. Steil, of the Coun­cil on For­eign Re­la­tions, said the com­po­si­tion of Trump’s ap­point­ments “doesn’t seem to be con­sis­tent with his rhetoric dur­ing the cam­paign,” which was cen­tered on a pop­ulist mes­sage that res­onated with the less-wealthy.

“Trump’s got a lot of work in front of him try­ing to con­vince his work­ing class sup­port­ers that he can de­liver on their agenda, be­cause boost­ing the Dow was clearly not their pri­or­ity.”

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