Trump Just Took Credit for the Stock Market's Huge Rally (Again)

Updated on
  • Trump says the stock market is climbing ‘because of me’
  • Earnings forecasts have barely budged since the election

Donald Trump

Photographer: Tomohiro Ohsumi/Bloomberg

Step aside analysts. U.S. President Donald Trump knows why stocks are at an all-time high.

Speaking to reporters on Air Force One over the weekend, after the S&P 500 closed Friday at fresh record, Trump said: “The reason our stock market is so successful is because of me. I’ve always been great with money, I’ve always been great with jobs, that’s what I do."

It’s not the first time the president has claimed credit for a rally that has seen U.S. stocks jump more than 20 percent in the past year, though it may be the most blatant. Tax reform and fiscal stimulus hopes helped propel American equities in the wake of Trump’s election win, but certainty that the Republicans will be able to push through their legislative agenda has since dwindled.

To analyze Trump’s contention, it helps to examine how earnings expectations have changed since before he was elected.

In short, they haven’t.

Profits in the S&P 500 Index will total $129.40 a share in 2017 and $145.70 next year, according to analyst projections compiled by Bloomberg from thousands of individual company estimates. Four days before the presidential vote, the forecasts were roughly the same -- $131.30 for 2017 and $146.40 for the following year.

So if you believe earnings drive share prices, not much suggests Trump has improved the market’s underpinning. At the same time, the president could argue he’s done nothing to get in the way of last year’s estimates coming true. And that in itself is an accomplishment.

Analysts, who tend to reduce their annual earnings forecasts as the year progresses, have cut their current-year projections by the smallest amount in at least five years, data compiled by Bloomberg show. And Trump has overseen an expansion in valuations, with the S&P 500 trading at 21.8 times profits, from 20 before his election.

“This year U.S. corporate earnings have met or exceeded expectations, so I think it’s the global macro recovery that’s been pushing up U.S. or worldwide equity markets," said Thomas Kwan, chief investment officer at Harvest Global Investments Ltd. in Hong Kong. When it comes to the White House, “now it seems like they either won’t do anything or there’ll be a small tax cut, but in terms of other policies, it doesn’t look like there’ll be an obvious effect on the U.S. economy or markets.”

The S&P 500 just capped the longest stretch of weekly gains since 2013 as Apple Inc. results and strong services sector data added to optimism in the economy. U.S. equities are now worth an unprecedented $28.7 trillion, more than three times the size of the next biggest stock market (mainland China), and up by $3.5 trillion this year, Bloomberg data show.

At a press briefing with Japan Prime Minister Shinzo Abe in Tokyo on Monday, Trump said that one of the reasons the U.S. equity market is "behaving the way it’s behaving" is that regulations are being eased. He also listed economic achievements since his election including the creation of millions of jobs.

Market Fortunes

The White House’s twists and turns have at times rocked U.S. and even global stocks this year. The market followed the fortunes of Trump’s failed health care reform, which was seen as a bellwether for his ability to enact key proposals such as tax cuts. Scandals such as investigations into Russian interference and Trump’s response to the Charlottesville violence also weakened expectations for any market-friendly policies, undermining equities briefly. More recently, speculation over Trump’s appointment of the next Federal Reserve Chair -- which at times took on the quality of a reality show -- has also dominated markets.
And yet, his choice of Jerome Powell is seen as cementing a similar approach to monetary policy as that of Janet Yellen, an ally to stock investors. And equities have probably benefited from Trump’s more conciliatory approach to trade relations with China and others, at least compared to campaign-trail rhetoric.

Now, the focus is on whether the Republican Party -- led but also divided by Trump -- will be able to pass a tax cut package that includes lowering the corporate tax rate to 20 percent from 35 percent.

“From the beginning of this year till very recently, the market basically progressively reduced expectations for those tax cuts, but stocks are up nonetheless," said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong.

As the policy priorities -- and the periodic bouts of turbulence -- emerged from the White House this year, earnings beats and positive profit outlooks continued unabated.

iPhone Fever

Apple briefly became the U.S.’s first $900 billion company last week as its stores were inundated with customers trying to get their hands on the new iPhone X, demand that’s underpinning the firm’s prediction of record sales in the Christmas quarter. Amazon.com Inc.’s third-quarter profit of 52 cents a share topped analysts’ estimates by a record 1,305 percent. And Caterpillar Inc., often considered a bellwether for the global economy, last month made its third-straight increase in annual revenue projections.

“After about a year of earnings beating expectations and relatively high expectations now, naturally people will expect slower earnings growth," said Harvest’s Kwan. Still, “any slowdown in earnings growth will be mild."

— With assistance by Tracy Alloway, and Jodi Schneider

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