President Trump performed his greatest hits for Congress and U.S. households on Tuesday night. Tax cuts, regulatory relief, greater military and infrastructure spending -- they were all there.
Many observers attribute the current U.S. stock market rally to Trump’s pro-growth promises. The S&P 500 was up 6.2 percent between election day and Trump’s inauguration, and it extended that gain to 10.5 percent through Tuesday.
But the causal link between the market’s post-election euphoria and Trump’s policies seems more tenuous after his speech to Congress. The Trump bump was meant to be a down payment that’s conditional on the administration providing further details about its plans. And yet, despite the fact that details were nowhere to be found, the S&P 500 shot up 1.4 percent the next day.
It’s reasonable to ask how much of the Trump bump can actually be attributed to Trump. While we’ll never know for sure, I looked at daily closing prices for the S&P 500 since 1928 -- the longest period for which numbers are available -- to see how the market reacted to previous elections. If men are the products of their times, the same can be said for stock rallies.
For starters, there’s nothing unusual about the Trump rally. In fact, the S&P 500 moved higher between election day and inauguration day after 15 of the 23 elections since 1928, or 65 percent of the time. The average gain was 5.1 percent, which is slightly less than Trump’s bump of 6.2 percent.
The size of Trump’s rally isn’t particularly notable, either. It ranks fifth on the list of 15 election-to-inauguration rallies, and well below the rally of 13.3 percent that President Herbert Hoover enjoyed when he was elected president in 1928.
Granted, Trump’s rally has extended well beyond inauguration day, but even that isn’t unusual. The S&P 500 was higher 14 times between election day and the end of February since 1928, or 61 percent of the time. Trump’s rally of 10.5 percent over that period is well above the historical average of 7.5 percent, but it’s by no means record-breaking. Trump’s bump ranks fourth on that list, edging President Franklin D. Roosevelt’s 1944 rally by just 0.2 percentage points. And this time the top spot goes to President John F. Kennedy’s rally of 15.1 percent in 1960.
So what does all this portend? Not much, unfortunately. Just because the market has smiled on Trump so far doesn’t mean it will continue to. Since 1928, the correlation between how the S&P 500 fared from election day to inauguration day, and how it fared one year after the election, is just 0.07. The current rally, in other words, isn’t indicative of what lies ahead for the S&P 500 in the coming months.
That doesn’t mean the historical data has nothing to say. When I look at the meaningful market moves that followed previous elections -- and I count the current Trump rally among them -- it seems as if those moves had little to do with the president-elect and a lot to do with the prevailing economic environment.
Hoover, for example, enjoyed his 13.3 percent bump from election to inauguration during the height of the Roaring 1920s. Just four years later, Roosevelt watched the S&P 500 tumble 19.3 percent through his inauguration day, but that was during the depths of the Great Depression.
There are lots of other examples. President Dwight D. Eisenhower got a Trump-like 6.3 percent election-to-inauguration bump in 1952. The U.S. economy was growing rapidly and unemployment was just 3 percent at the time. President Bill Clinton enjoyed an 8.8 percent bump in 1996 when the dot-com boom was raging. Four years later, President George W. Bush saw the market decline by 6.2 percent in 2000 as the dot-com mania unraveled. And, of course, President Barack Obama watched the market topple 19.9 percent in 2008 during the height of the financial crisis.
So maybe the Trump rally has less to do with Trump and more to do with the environment he inherited. The U.S. economy has grown for seven consecutive years. Unemployment is at its lowest since 2007. That would better explain why the stock market continues to rally regardless of the lack of clear direction from the White House.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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