Is President Trump responsible for this market rally?
The Dow Jones Industrial Average is now up 4,000 points since the election. President Trump is taking a victory lap for this accomplishment. Here is a recent tweet from President Trump, “Stock Market could hit all-time high (again) 22,000 today. Was 18,000 only 6 months ago on Election Day. Mainstream media seldom mentions!”
I’m quite confidant that if markets go down, he wouldn’t take the blame. The humble approach works much better, but we all know that’s not in President Trump’s DNA. Warren Buffett would have some astute advice for President Trump. Here is one of Buffett’s most popular quotes, “Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.”
Buffett believes that it is earnings that drive stock prices and not presidents. The main reason why the market continues to hit new highs is that profit and sales growth continues to climb. Apple selling more iPhones and Boeing selling more planes has more to do with the recent rally than President Trump’s policies. The fortunes of Facebook, Amazon, Google, Netflix, Microsoft, and a few other large cap growth stocks are largely responsible for the gains this year. Large growth stocks have been on a tear this year.
According to FactSet a record-high 73% of S&P 500 companies are beating sales estimates to date for Q2.
The following headline from a Wall Street Journal article on July 30th sums up just how good earnings have been – U.S. Companies Post Profit Growth Not Seen in Six Years. The article highlights, “strong earnings come as tax and infrastructure initiatives that were expected to spur economy have been sidetracked amid Washington infighting.” It’s no surprise to me that the S&P 500 is up 11% YTD, and earnings at S&P companies are expected to rise 11% this quarter.
The underpinning of this bull market is the U.S. labor market couldn’t get much stronger. The job report on Friday showed the jobless rate matching a 16-year low and monthly wage growth picking up. People are flush with cash and are feeling more secure in their jobs. The housing market is even stronger than the job market. House prices are rising twice as fast as wages and house prices are the strongest in nearly 3 years.
But there can be a good case to be made that President Trump has spurned the economy. Jamie Dimon, who is the CEO of J.P. Morgan, has been a strong supporter of President Trump. He stated back on March 9th that President Trump’s economic agenda has “woken up the animal spirits” in the U.S.. A quote from this Bloomberg Television was that the President’s plans “will be good for growth, good for jobs, good for Americans. The caliber of Trump’s economic advisors gives him confidence, and advised observers to “forget the tweets” and instead focus on Trump’s policies to reduce corporate taxes, cut regulatory red tape and build new infrastructure.”
The case against President Trump’s brash tweet is that the rest of the world has staged an even stronger rally. The European stock market is up over 20% (IEV) and Emerging Markets (EEM) is up 26% so far this year. The victory lap by President Trump with the S&P 500 being up only 11.72%, doesn’t look so grand when compared to the rest of the world.
The case for or against President Trump being responsible for recent gains is a great debate. I’d rather continue to focus on what is most important to investors like Warren Buffett, which is the level of interest rates, employment, inflation, housing, and corporate profits rather than the sideshow in Washington. My eyes will remain watching the playing field.
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