‘Broader Swath Of Americans’
To Quincy Krosby, chief market strategist at Prudential Financial, there are two obvious ways to see the president’s market impact. First, the rollback in regulations that had held back small and mid-sized businesses, and second, the tax cuts that brought corporate rates more in line with the rest of the developed world.
“It was thoroughly pro-business,” Krosby said by phone. “It did help the market.”
Though some say the tax reductions helped goose company buybacks and dividends in lieu of capital expenditures, share repurchases matter for companies’ earnings per-share, she said. Buybacks remain a hotly contested topic within many market circles, but if they helped push stocks higher, then the ripple effects will have been felt in pension funds and IRAs.
“It affects a broader swath of Americans,” Krosby said. “It does, in fact, drill down to the average American, who does have a job, who does have a pension.”
Just One Factor
Craig Fehr, an investment strategist at Edward Jones, says there’s no denying some of the Trump administration’s policies — again, the tax cuts and deregulation — helped spur a sizable run for stocks. But in his view, a larger role was played by trends that would guide markets during any administration. In the postwar period, rarely have stocks declined over four-year presidential cycles, Fehr noted. Presidents, he says, are but one factor and don’t dictate markets over longer periods.
“Lower taxes for corporations, deregulation probably had some positive effect in the economy growing, but at the same time, the declining unemployment rates and healthier labor market — which were probably going to take shape regardless — was a much more powerful factor than simply some of the adjustments made by the Trump administration,” said Fehr. “In a $20 trillion economy like the U.S. economy, it’s much more of a battleship than a canoe — it’s not going to turn at every wave.”
Extending The Bull Run
While Manulife Investment Management’s Thooft says it’s virtually impossible to link equity returns to the president alone, he also acknowledges corporate tax reform flowed directly through to companies’ earnings. He estimates that accounted for roughly half of stock returns under Trump, and helped extend the economic recovery and equity bull market.
“It was probably a tailwind to that, it’s just a question of magnitude,” said Thooft. “There’s no doubt that tax policies, perhaps some of the deregulation policies, did help feed sentiment and help feed equity returns. Arguably you could also point to the fact that the low levels of interest rates on top of these additional policy measures led to perhaps an expansion in what realistic valuations are these days.”
Market Is Bullish
Randy Frederick’s been in the business for 30 years. He remembers clients asking him in the depths of the 2008 financial crisis if they should move into cash. Frederick, who’s vice president of trading and derivatives at Charles Schwab & Co., has gotten similar inquiries in recent days in regards to the election. His advice? “Your best bet is to just stay in,” he said. “If your time horizon is long enough, the market is always bullish.”
Frederick crunched the numbers on S&P 500 returns going back to 1932 and few instances show negative returns over four or eight-year terms.
“It’s very, very rare and yes, if you slice it down by each of the single years over a presidency, you might find a period of time when it was negative but you won’t find consistency across presidents,” he said.
He continued: “The reason for that is that what may have caused the markets to go down during that particular president’s first year or third year or whatever it was was probably something completely unrelated to that particular president,” he said. “Don’t base your investing decisions on the presidential cycle and don’t assume the market’s doing what it’s doing because of the president. It’s probably a coincidence. It may not have anything at all to do with it.”
This article was provided by Bloomberg News.