“My Stock Market gains must be judged from the day after the Election, November 9, 2016, where the Market went up big after the win, and because of the win!”, Donald Trump shouted, from France, at his more than 63 million Twitter followers.
That tweet hit on Sunday evening in the US. Equity futures were in a tailspin and FX markets were in turmoil. It looked as though a Monday meltdown was inevitable.
Around eight hours later, Trump told reporters in France that Chinese negotiators called the US side on Sunday evening in a bid to “get back to the table”. The vast majority of market participants believe the president was lying, but his willingness to fabricate a phone call was seen as evidence that the “Trump put” may have kicked in – that four straight weeks of losses were enough.
Read more: Trump’s Message To War-Weary Markets: ‘Sorry, It’s The Way I Negotiate’
At this point, though, the die is probably cast when it comes to how the history books will remember Trump’s first term vis-à-vis stocks. It will be a story of a nosebleed rally and a foreign policy bungle, which put the brakes on.
If we do, as Trump commands, “judge” the president by equities’ performance since the election, a distinct inflection point appears on the chart. Goldman highlights this in a note out Monday.
(Goldman)
“The S&P 500 soared by 28% during the 16 months between election night 2016 and March 2018 [but] during the 17 months since the steel and aluminum tariffs were announced, the stock market has advanced by just 4%”, Goldman says, adding that “a key reason the S&P 500 continued to climb despite the start of the trade war was that the December 2017 tax reform slashed corporate tax rates and earnings for S&P 500 firms surged by 23% in 2018”.
Now, that tax tailwind has dissipated, leaving nothing but difficult comps in its wake.
“The leap in profits from lower taxes is now behind us and our top-down EPS estimates suggest growth of 3% and 6% in 2019 and 2020, respectively”, Goldman goes on to say, before cautioning that while the bank’s base case is still for the S&P to rise to 3,100 by year-end, altering the assumptions around the trade war changes things materially.
“If we assume the trade war escalates and a 25% tariff is levied on all imports from China, then 2020 EPS results could be lowered by 4% (to $170) assuming no substitution, pass-through of costs, or dramatic impact on economic growth”, the bank writes, en route to warning that ultimately, the S&P could fall 8% in an adverse trade scenario.
You could easily argue that there’s quite a bit more downside than that in an extremely adverse trade situation and to make the point, all you’d need to do is cite the three separate days in August when the S&P fell 2.5% or more in a single session.
In any event, the point is simply that history will likely do as Trump asks and “judge” his market record “from the day after the Election… where the Market went up big”.
And, as Goldman remarks on Monday, “the history of the Trump Administration is likely to show a major inflection point in the trajectory of stocks coincided with the spring 2018 tariff announcements”.
There’s more than a little irony inherent in the idea that things inflected for the worse just as Trump moved ahead with the implementation of one of his key campaign promises. Then again, everyone warned him – tariffs are a tax, and slapping them on months after cutting taxes is therefore the very definition of absurd.
Oh, and if you’re wondering who the offshore yuan “believes” between Trump and the Chinese when it comes to the whole phantom phone call debate, it’s not Trump…
I used to make great prank phone calls when I was a kid. Maybe I should start leaving phony messages with the White House switchboard in order to boost my equity portfolio…(?)
Is anyone else totally burned out on trumpmania and absurd levels of over-saturation? I was sick of it before, but now that we have trump tweets embedded into every bit of market news and technical analysis, I just wanna tune it all out and binge-watch Leave it to Beaver episodes. The hyper focus on trump tweets is way too much here and everywhere!
if you’re managing positions, you can’t “tune him out”. it’s the president of the united states tweeting about trade policy, FX policy and trying to dictate US (and global) monetary policy in real time, all day, during market hours. it makes zero sense to suggest that traders “tune out” something that is moving their positions every, single day. that’s like telling your 16-year-old to “tune out” stop signs and stop lights because they are all over the place and really annoying for anyone who just wants to drive and not stop.
Oh come on H….. That was not really the point Wally tried to make…. Point may have been that superficiality has taken over our financial news to the point that the system can’t differentiate between fact, reality and fiction..But traders will be traders until there is a market for their skills..lol…nite…..
I wonder if Bluto has a proxy trading account? If so, he is a Jesse Livermore X uncountable.
True enough Mr. H, but taken to an extreme, if one becomes overly caught up in hyper trading and or high frequency trading, I would think that hyper-transaction costs and non-stop gaming would take a serious financial toll on someone that was too caught up in trying to outrun chaos. I have doubts that super smart algorithmic trading will be profitable long-term with this type of insanity — maybe it’s a Yuge part of the future, but by in large, micro-short positions and long positions are looking like they have more and more risk, and I think this type of game will spook investors, who will be less willing to play along.
I don’t know that one has to attempt to trade every tweet but one certainly has to monitor them. Substantive policy decisions are now being announced by tweet, and tweets are as close to a real time window into Trump’s psychology as you could hope for.
On the stock chart, note that since the Jan 2018 high, not only has the trend of gains slowed but the selloffs are coming more frequently. Lower reward with higher risk.