Commentary: Was Trump really that great for the economy and financial markets?
Donald Trump has taken credit for the nation’s steady economic health but a closer look reveals a conflicting portrait, says Refinitiv’s Sherry Madera.
LONDON: The outcome of the US presidential elections will unequivocally play a huge role not only in shaping the future of the world’s largest economy, but also the underlying dynamics for global financial markets worldwide.
With outcome of the elections held on Nov 3 still uncertain, many investors are waiting with bated breath on the final outcome and how the winning candidate would shape the direction of the world economy.
Presidents wield considerable influence when it comes to policies that make or break an economy – but their power is not the only element at play.
Any number of factors can throw an economy out of balance, like the dotcom bubble bursting during George W Bush’s first term and the recent COVID-19 pandemic, which has led to the biggest US economic contraction ever recorded.
Looking back at Donald Trump’s administration, the President has taken credit for the nation’s steady economic health prior to the impact of COVID-19. However, a closer look at the US economy during this period reveals a conflicting portrait.
STEADY ECONOMIC GROWTH SINCE 2009
For the past three years, many have argued that Trump inherited a great economy from the Obama administration and has done very little to alter its course.
According to data from Refinitiv, during the first few years in office, President Trump oversaw a growth in real GDP of around 2.6 per cent per annum up until the pandemic.
This was in fact slightly higher than the average of 2.4 per cent per annum under Obama for the period 2013 to 2016.
Unemployment was declining with a downward trend from 4.7 per cent in November 2016, to around 3.5 per cent in September 2019. This was in fact the lowest unemployment that the US has ever experienced in the past 50 years.
Similarly, wage growth has been on a steady rise, with many quarters showing growth of around 6 per cent prior to the pandemic.
Household purchasing power has also increased given that wage growth has been substantially higher than inflation over the same period. The annual inflation rate for 2019 was 2.3 per cent.
The reversal of wage growth around the time of the first outbreak of COVID-19 – wage growth in the US fell to -7 per cent in April 2020 - can be attributed to the sharp deterioration of employee bargaining power during the rapid increase in unemployment.
Business investment has had mixed results despite the corporate tax cuts to 21 per cent from 35 per cent previously. This can be attributed to companies choosing to retain profits instead of translating them into increased investments.
STOCK MARKET GROWTH AND JITTERS
Deciding on when investors should begin the comparison of Trump’s and Obama’s stock market return story is rather complicated.
From the perspective of investors, Trump’s presidency has been good for markets with the stock market returning between 40 per cent, for the Russell 2000 Small Cap, and up to 80 per cent, for the Nasdaq Composite, over the period November 2016 to February 2020.
For the S&P, returns during this period were just under 60 per cent.
However, many would argue that Obama’s performance over the same length of time after his inauguration is more impressive.
One should also note in analysing Obama’s legacy that the stock market arguably had more ground to cover, especially having taken a huge hit during the 2008 to 2009 global financial crisis.
In line with other major stock markets around the world, the US stock markets took a battering in March 2020. This only took a turn for the better with the US$2 trillion stimulus package by the US government, with all stock market indices rebounding sharply.
Remarkably, markets now sit at either higher or in-line with pre-pandemic levels.
The Nasdaq composite, which tracks technology stocks, has thrived despite the global economic uncertainty as people’s reliance on technology to connect and work grew due to the lockdowns.
Overall, market volatility has been relatively constant in the first three years of the Trump presidency.
However this has spiked immensely during the start of the pandemic and remained higher than pre-pandemic levels as investors continue to face increased uncertainty.
SECTOR GAINS AND LOSSES UNDER TRUMP
With the exception of energy, all sectors delivered positive returns under Trump’s administration ranging from 36.1 per cent for financials to 184.8 per cent for information technology.
Largely driven by the FAAGs (Facebook, Apple, Amazon, Google) as well as the shift to cloud storage solutions, tech stocks have been the biggest winner, outperforming all other sectors, although we should note that in recent days tech stocks have dropped off the back of COVID-19 concerns in Europe and the US.
READ: Commentary: Politics used to create the stability needed for business growth. That has now changed
Despite the dismantling of Obamacare by Trump’s administration, healthcare stocks remained undeterred and have performed well over the same period.
Following the global financial crisis, the real estate market has seen a relatively steady return, even though it recorded a lower performance than other sectors.
The negative returns on energy stocks have been driven by the reduction in global oil prices as well as the increase in investor appetite for cleaner energy stocks.
However, sectors such as consumer discretionary, materials and information technology posted significantly higher returns three years into Obama’s administration as compared to Trump’s administration.
A CLEAR PATH TO VOLATILITY AHEAD
Looking at Trump’s economic scorecard, leaving his actions on diplomacy aside, he has not fared too badly from the perspective of stock investors and job growth, but it is not all his doing.
Broader measures on the overall job market and wages points to the steady and upward glide path that began under Obama.
The fundamental problem comparing the tenure of Obama and Trump is that the former led the country out of a recession, when growth indicators such as GDP, unemployment rate were beginning to show signs of recovery.
By contrast, Trump entered office at a time of full employment and economic expansion.
At this point, there are more factors that come into play such as the ongoing COVID-19 crisis, climate change and fraying relations with China that are vastly different from the cards that were dealt when Trump was inaugurated in 2017.
Thus, it is difficult to ascertain if Trump’s impact on the markets were larger than Obama’s during their respective terms as US president.
While the present candidates represent radically different views on the future of the world’s largest economy, from domestic policies to the role of the US in the global arena, the near-to-medium focus will be on battling the COVID-19 crisis and stimulating global economic recovery.
The only sure bet is volatility in the weeks to come.
Sherry Madera is Chief Industry and Government Affairs Officer at Refinitiv.