Don’t Expect Any President to Sink or Save the Market
I prefer to steer clear of politics around here, but about once a day, an investor will ask me, “So…when will Trump sink the market?” At the other end, President Trump offered his take that impeachment would wreck the market. The president added, ominously, that, “everybody would be very poor.”
Eh, I’m not so sure about that. It’s true that the stock market got shellacked during Watergate, but it did well after President Clinton’s difficulties. (Sorry, I don’t have data on Andrew Johnson.) To be fair to President Nixon, there were a lot of other things going on during Watergate. The economy was tanking, inflation was soaring, and the Middle East was in flames. The 1973-74 market bust-up was one of the worst on record.
In reality, I don’t think the occupant of the White House has a large influence on the financial markets. I realize that may sound heretical to some, but I stand by it. After the election in 2016, Paul Krugman wrote, “If the question is when markets will recover, a first-pass answer is never.” And he has a Nobel Prize! Politics and investing don’t mix well. In the short-run, sure—the president certainly matters. But in the long run, it’s all about sales, earnings and interest rates. Money stuff: that’s what counts.
After President Trump’s election in 2016, there was a definite Trump Bump, but it didn’t last long. You can also see the impact on certain sectors. Healthcare stocks got spooked during Hillary Clinton’s healthcare initiative in 1994. Gun stocks often jump after a shooting on fears (or hopes) that folks will rush to buy before a new anti-gun law is passed.
My take is that financial markets are probably more influential on policy makers than vice versa. In 1981, François Mitterrand shocked the world by getting elected president of France. He had a bold socialist program. Unfortunately for him, forex traders found out, and the franc got sautéed. The weak currency started to hurt the French economy. In other words, Mitterand’s brand of socialism was hurting workers, and within two years, he did an about-face (Tournant de la rigueur).
It’s odd how we act like politicians are players in a game, and the market is the scoreboard. I sometimes wonder if it’s the other way around. I’ll reiterate my position that the U.S. economy is mostly good right now. Not perfect, but good. On Thursday, jobless claims again came close to their lowest level since Altamont. Corporate earnings are pretty good. Inflation and interest rates are still low. In fact, the real Fed funds rate is still negative!
The growing Trade War is a concern. In fact, this week’s Fed minutes indicated that FOMC members discussed the issue at their last meeting. Even Hormel, a Buy List member, said that tariffs could hurt them this year. Still, trade probably isn’t large enough to sink the economy.
Truthfully, the most important sector to watch is housing. This is the tail that wags the dog. For the most part, housing looks pretty good. Mortgage delinquencies are running at a 12-year low. There could be some cracks showing in housing’s facade. For example, Redfin’s stock got pummeled earlier this month. I don’t want to overstate the case. There could be big problems soon, but for now, there’s no reason to believe any president or any party will wreck the stock market.