Why Neither Trump nor Obama Deserve Credit for a Record Stock Market
There is a lot of excitement over the record-breaking performance of the stock market this week, as the Dow Jones Industrial Average broke the 20,000-point threshold for the first time ever Wednesday.
Acolytes of President Trump are naturally hailing the historic mark as major validation for the president’s economic agenda and influence. As Counselor to the President Kellyanne Conway tweeted, this is the so-called “Trump effect.”
The Trump Effect. https://t.co/wexrLY0ulp
— Kellyanne Conway (@KellyannePolls) January 25, 2017
But the hard truth is, if you are going to directly attribute performance of the benchmark index to national optimism in President Trump, you must be intellectually honest and consistent.
I'm happy about the stock market, but if you're going to attribute it to Trump, you have to also attribute its 8K to 19K growth to Obama. https://t.co/DmXt9dA0J7
— Ben Shapiro (@benshapiro) January 25, 2017
Indeed, the reality is that, as the Bespoke Investment Group noted in June, the stock market had done “exceptionally well under President Obama”:
“The Dow Jones Industrial Average’s performance [under Obama] of 120.6% ranks as the sixth best of any US President since 1900, just behind Reagan and comfortably ahead of Truman, who at 74.4% is far behind.”
Now, an objective analysis of the past administration will tell you that the Obama economy only led to the worst recovery from an economic recession since World War II, at least.
So, how do you reconcile that with the soaring Dow of years past? What you need to understand is that stock markets are merely reflective of the investors’ whims and expectations. Investors speculate and put their money where they think they will make a good return.
And the president can have some influence over stock prices by affecting expectations. For example, President Trump has promised to repeal “out-of-control” regulations that are inhibiting entrepreneurs and manufacturers from building in America. That sends a certain signal to investors.
But the president does not have unilateral control over the economy. The Federal Reserve’s manipulation of interest rates, for example, likely had a tremendous role in the soaring of stocks during the Obama administration. But, in the end, the stock market is a very poor measure in trying to gauge the health of the economy, because investors can misinterpret signals. Such was the case in 1929, as the stock market soared on the precipice of the Great Depression.
Again, the stock market is merely an economic indicator for investment. It is not an indicator of economic health as a whole, nor does it signal the success, or lack thereof, of the president. Be careful not to treat it as such. (For more from the author of “Why Neither Trump nor Obama Deserve Credit for a Record Stock Market” please click HERE)
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