The Verus Team

The President and the Stock Market

Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James.

I recently came across an article that highlighted the President has tweeted over 60 times about the stock market since being elected in late 2016.  Mostly he has drawn the parallel of the stock market’s performance (generally positive since the election) to those policies directed by his administration.

Now while I think it is safe to say that we are witnessing a less-than-traditional Presidency, and certainly the flow of information being largely disseminated directly through a Twitter account is quite unique.  It is almost equally distinctive that a President has been so public in tying his success and policies to the performance of the stock market.

Not in my almost 24 years in this business can I recall a President so directly and openly welcoming a connection to the price appreciation of the stock market to his administration.  It has almost gotten to the point where this President is using the market’s daily performance as a barometer or scorecard of his Presidency.  And as such, he wants it to go up..

As any internet search will show you when pulling up the “President and the stock market”, you will see countless articles highlighting both how the stock market performance has done during this Presidency so far when compared to other Presidents; or Op-Ed pieces drawing attention to the mistake it is to use the stock market performance as a measuring stick to the actions and policies of an administration.  Oh – or you are pointed to all of his tweets about the topic.

Traditionally, and when considering the multiple factors that impact the price performance of the stock market, it is usually not a wise decision to connect the actions coming out of the Executive Branch to that of market direction.  Too many times trying to draw the correlation of a Presidency to the market can make one doing so look silly – and then cause one to back away from the connection when the narrative is no longer working.

Take the recent market action in February as an example.  On the heels of a very good performing year in the stock market in 2017, January was almost even more impressive.  The S&P 500 went up over 5% in the month of January this year.  As we experienced this price appreciation, we also witnessed more tweets highlighting outstanding performance and recognition of the recent policies aiding the rally. 

As if on cue following the President’s State of the Union at the end of January, the stock market proceeded to sell off and correct in the first couple of weeks in February.  As the market was going down, many pundits came out with some “told-you-so” commentary, once again highlighting the foolishness of correlating the policies out of the White House to market performance.

Given the reversal in market performance and increased market volatility in February, you would think the President would refrain, or at least back away from comment about stock market performance.  But as previously mentioned, these are not typical times, and this is not your typical President. 

Instead of being more subdued during the market drop in early February, the President commented – and I paraphrase – previously good news translated to market prices going up, now good news translates to market prices going down. “Big Mistake.” – he tweeted.

Whoa!!  How should someone interpret that?  What does it mean for stocks and stock prices when a President has so publicly chosen to use it as his scorecard?  Especially when it comes from a President that has also been so publicly competitive, and some may say, polarizing. 

It obviously helps all Presidents when the stock market goes up.  People feel wealthier, it helps consumer confidence, and can assist in increased spending and business activity.  It also helps support pensions, non-profits, and charitable causes.  Just to list a few examples.

Historically however, Presidents have long understood that there are variables and factors outside their control that can influence short-term market price behavior.  In fact, until this administration, few Presidents spent much time directly speaking about the stock market to any great lengths at all. 

Given the weight that this President places on the market, is it important for him to see it keep going up?  It seems to appear so. 

What will he do to try and influence that ongoing upward direction?  Will he be able to really influence the market’s direction?  What happens if the market goes down?  What will he do?  All questions that before now were rarely (if ever) asked, but now, could be somewhat relevant.

History has proven that it is usually unwise to correlate actions and policies of a Presidency directly to stock market price action, but so much in history has been thrown out the window of late.  At least with the traditional way in which we now view politics, politicians, stock markets, and the dissemination of information. 

Should one do anything differently with investments when the President is so openly cheering for the stock market to go higher, or scolding it when it doesn’t?  Probably not, but again like a lot of things that has one shaking their head, these are certainly different than times past.  

When have we ever invested in an environment when you simultaneously have a President passing the biggest corporate tax cuts in 80 years, deregulation, introducing an infrastructure bill, and cheering for higher stock prices?  All occurring while also operating in a historically low interest rate world with accommodative global monetary policy.

While risk tolerance and an individual’s personal financial situation should be the primary influencers of an asset allocation and investment strategy, this President’s attention to the stock market sure is hard to ignore.  Especially when taken into account with the other pro-business and pro-stock conditions mentioned above.

Where Presidents have long stayed away from a lot of stock market conversation and pontification, this one seems to be its cheerleader and advocate.  As an advisor, investor, and US citizen, I am completely wowed by the whole thing, and am obviously interested to see how it plays out from here. 

The pragmatist in me knows that no one person can directly influence or will the stock market’s direction from one day to the next, but as realistic as I am about that fact.  I have no idea what it is like to advise and invest in an environment where the President openly wants stock prices higher. 

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Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James. Opinions expressed are as of April 20, 2018 and are subject to change without notice. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of the available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy employed. The S&P is generally considered representative of the U.S. stock market. Please note that direct  investment in any index is not possible. Past performance is not a guarantee of future results.