Is Trump Good For The Stock Market?
In his State of the Union address this week President Trump touted the “great” U.S. economic performance during the first two years of his presidency as one of his key accomplishments. Although he did not mention U.S. stock market performance in the speech (likely because it did so poorly last year), he is also on record as having taken credit for its robust performance in 2017. It’s common for politicians to take credit for positive things that occur during their time in office and shift the blame to others for negative events. But can we really know if the politician himself or herself is actually having an impact on those events?
Trump has shown himself to be extremely direct and vocal when it comes to praising or denigrating others, and that includes public companies as well as their CEOs. Recognizing this, Barry Ritholz, a New York financial advisor, decided to compare the performance of the companies that Trump’s tweeted positively about against those that he disparaged. In early 2017 Ritholz created two indices: one comprising the eleven companies Trump publicly favored (Ritholz called it the “Oligarch” index) and one holding the fifteen companies on his sh*t list (the “Drain the Swamp” index).
How have these indices performed relative to each other over the last two years? The results are interesting to say the least. In 2017 the Drain the Swamp index trounced the Oligarch index, gaining 43% compared to the Oligarch’s 20%. Again in 2018 the Oligarch index fared extremely poorly, dropping over 23%, while the S&P 500 declined only 5% and the Drain the Swamp index rose over 6%. In short, the performance of the stocks of those companies that Trump favored since his presidency began was awful. And the reverse was true for the companies that Trump lambasted. As an investment advisor Trump’s record has been 100% negative.
Seriously though, as I have written many times, it’s impossible to predict stock performance. Markets are driven primarily by company performance and investor sentiment. Presidential behavior has at best only a very indirect influence. So despite two years’ worth of compelling data I would not recommend investing in the companies in the Drain the Swamp index or shorting those in the Oligarch index. In fact, probably the most intelligent strategy would be to avoid basing any investment decision on anything at all that Trump says or tweets.
For details on the companies comprising these indices, here’s a link to Ritholz’ post on Bloomberg: