For some CEOs, it pays to draw Trump’s ire
Stocks of Amazon and New York Times have managed to do consistently well
Two years ago, a new US presidency began, stylistically different from the one before it. As inauguration approached, I wondered: How would President Donald Trump affect the market performance of the industries and companies he championed and those he attacked?
The period between Election Day and the inauguration was filled with aggressive Twitter broadsides by the president. He tweeted at companies by name; he yelled at or praised their CEOs; he caused their stock prices to gyrate madly. What were the long-term consequences of being on the president’s good or bad side?
To find out, we created a pair of indexes, and tracked them for a year. The Oligarch (companies he favoured) and the Drain the Swamp (companies he denigrated) indexes were filled with companies straight from the feed of the tweeter-in-chief. This allowed us to track how well or poorly they did relative to their relationship with the president. What impact would he have on the companies’ market performance?
Asked more simply, if you run a publicly traded company, was it better for your stock price to be Trump’s friend or foe? The answer, as we discovered one year later, was a shocker.
When we look at the companies Trump threatened, we discover this surprising fact: Having the US president get angry with you, call you out publicly and make scary sounding threats at you — well, it turns out to be not so bad. In fact, the results are really good.
And the companies he embraced? Well, not so much. In 2017, the Oligarch Index gained a respectable 20 per cent. But it lagged the benchmark Standard & Poor’s 500 Index’s rise of 21 per cent. In the same year, the Drain the Swamp Index crushed the Oligarch Index, gaining 43 per cent.
But let’s not get too far ahead of ourselves: it was only one year, and one where markets everywhere went up, something for which Trump had no qualms about taking credit. Here we are, one year later, and 2018 was a much more challenging period. Amid a spike in volatility, the S&P 500 declined 6.2 per cent.
How did these two indexes do in that very different environment? The Oligarch Index really took it on the chin last year. For the one-year period ended January 10, the index fell 23 per cent. This was much worse than the S&P 500, which during the same period declined 5.5 per cent.
And the Swamp Index? It not only beat the Oligarch again, it crushed it, rising 6.3 per cent. That is a 29 percentage point advantage for Trump’s most-hated companies over his most favoured ones.
This is even bigger spread than the first year we tracked the indexes, when the spread was 23 percentage points.
Where did the performance advantages come from? Once again, the despised Jeff Bezos, owner of the Washington Post, and founder and CEO of Amazon.com had a good year. Bezos is now the wealthiest person in the world, with a fortune many times larger than that of the president, the size of which is in some dispute. Amazon defied the gravitational pull of the markets last year and gained 32 per cent (not counting dividends).
And Twitter, whose founder Jack Dorsey refused to create a lying Hillary emoji (really), thus earning the president’s neverending enmity, did even better, more than 36 per cent. Even the “failing” New York Times added more than 23 per cent during the period. Being on Trump’s bad side was not bad for business or stock prices.
Oligarch index disasters
The Oligarch index, meanwhile had some disasters. Colony Capital, whose founder, Thomas Barrack, is a close friend and ally of the president, saw its stock get cut in half. Goldman Sachs Group, dealing with an ethical cloud, fell 31 per cent; Ford Motor Co. declined 34 per cent.
Facebook, a conduit for fake news that may have helped Trump’s electoral prospects, lost almost a quarter of its value. ExxonMobil Corp., whose former CEO served for a time as secretary of state in the Trump administration, fell 17 per cent. All told, it was a rough year for the Oligarchs, with little other than huge tax cuts to comfort them.
Two very different market years that produced such similar results is curious. There was no malice aforethought on the part of this humble author in terms of picking a winning and losing a pair of portfolios. But who could have imagined this would be the result, based on nothing more than presidential tweets?
What explains this performance differential, or more specifically why have president’s favourite corporate managers, and their companies, done so poorly under his regime, and why have his most-despised opponents done so well?
I have a few ideas:
No. 1. The 72-year-old president is an old school guy, with old school friends. Their companies are not cutting edge, and shouldn’t be expected to deliver above-average results.
No. 2. Trump, who inherited much of his wealth, is intimidated by people much wealthier than he is, who have created value or built something from scratch. Thus, he steers clear of those builders or wealth creators who make him feel inadequate.
No. 3. Dumb luck, which will eventually reverse itself.
Regardless, we will track this for the third year of the Trump presidency, and report back to you in 12 months. Expect to be surprised again.