US equity market indexes, including the Dow Jones Industrial Average and the S&P 500, are trading near their all-time highs. In the fourth quarter of 2018, several pundits were forecasting a near apocalypse for this year. Meanwhile, at the height of the sell-off, President Donald Trump actually advocated buying US stocks. In hindsight, following his advice might have made you rich.
Let’s go down memory lane and think about the fourth quarter of 2018. At the time, there was a selling spree in US equity markets. Nothing seemed to be working well. The US Federal Reserve was on a rate-hike spree. On the trade war front, there was more negative news than positive. President Trump’s “Tariff Man” tweet only added fuel to the fire. On the macro level, the global economy was expected to slow in 2019. The Dow and S&P 500 were engulfed in a wave of pessimism, and there was a major sell-off. Apple (AAPL) alone lost more than 30% in the quarter.
President Trump’s advice
Meanwhile, even as the Dow Jones Index and S&P 500 were falling, Trump saw a buying opportunity. Speaking with reporters on Christmas, Trump said that it was “really a great opportunity to buy.” Despite the fourth-quarter sell-off, Berkshire Hathaway chair Warren Buffett largely stayed away from buying more stocks. One would have expected Buffett to buy more as the Dow Jones and S&P 500 plunged in the quarter.
Dow Jones at record highs
US equity market indexes are hovering near all-time highs and have risen sharply this year. Trump frequently tweets when the Dow or the S&P 500 hits a milestone. Today also he tweeted, “Economy is BOOMING. Seems set to have yet another record day!” With that said, it isn’t fair to speak of the economy booming and the markets being at a record high in one breath. After all, US economic growth has slowed. While they’ve been way better than expected in all three quarters this year, growth rates have gradually come down. On that note, given the global slowdown, the US economy looks to be much better than those of many other countries—if not outright “booming.”
Fed’s rate cuts
The Fed’s rate cuts have buoyed sentiments and helped the Dow Jones Index climb. However, after three rate cuts, the Fed has put the ball in Trump’s court. The markets are factoring in some sort of trade agreement between the US and China. If the countries falter on that front, we could see a sell-off in the Dow and the S&P 500. With earnings season wrapping up, the baton could pass to positive trade war news for the next couple of months. Can Presidents Trump and Xi Jinping provide us with a happy ending to 2019? We’ll keep our fingers crossed.