It makes sense — sort of.
When you assess the incoming economic data and the performance of various financial assets following an election, you should consider whether the result of that election might be influencing the data and/or the price action.
Donald Trump made that argument on too many occasions to count over the course of his presidency, insisting that he deserved credit for anything and everything good that happened from the time he won until his inauguration in January of 2017.
Trump’s insistence on that and, in the same vein, his incessant warnings about a biblical stock market crash in the event voters chose Joe Biden in 2020, serve as the context for the simple visual below, which shows that to this point in the election cycle, Biden is off to a pretty solid start.
I can hear the objections now: “That’s meaningless!” “There are too many factors to consider to make that a worthwhile chart!” “You can’t read anything about a president into a few weeks of S&P returns!” And so on.
Here’s the thing: All of those objections are duly noted, and those who would lodge similar complaints when presented with the chart (above) would be largely correct.
But Trump set this up. For four years, he loudly claimed that the economy and markets began anticipating and pricing in, respectively, his policies from Election Day. As such, his record on both stocks and the economy should include the lame duck session and the first three weeks of January. He also promised that stocks would crash and that Americans would see their retirement funds wiped out upon a Biden victory.
Well, here we are, three weeks on from the election and stocks haven’t crashed, unless you mean crashed up. The very same small-caps that folks thought would benefit from Trump’s win in 2016 are perched at record highs. The Russell 2000 is on track for its best month in history. Global equities are having their best month since 1988.
This week, Trump held a short, ad hoc press conference to celebrate Dow 30,000, a milestone he described as “sacred” and attributed to vaccine optimism.
He was obviously correct to suggest that stocks are excited about the prospect of medical breakthroughs with the potential to end the pandemic. But it’s also true that stocks’ most recent gains are at least partially attributable to political clarity (i.e., Biden won and the results won’t be overturned) and to news that Janet Yellen will become Treasury Secretary.
Market participants spent most of the last four months warming to the idea of a Biden win, comforted in the notion that more predictable foreign policy, less domestic strife, and the absence of “tweet risk,” would more than compensate for the drag from higher corporate tax rates and possible selling attached to a capital gains tax hike. When Republicans performed better than expected on the down-ballots, markets were emboldened by the notion that tax hikes might not be coming at all.
Ultimately, a confluence of factors contributed to what’s shaping up to be one of the best Novembers on record for US equities.
As far as Trump’s contention that putting a “legendary” businessman in the White House would invariably lead to blockbuster gains for stocks, he was kinda, sorta right.
Trump’s stock market through October 31 ranked sixth historically (h/t Sarah Ponczek). Note that both terms for Clinton and Obama make the top 10 list.
Perhaps Trump would have grabbed the top spot in a second term. Alas, we’ll probably never know.