Was the 2019 Stock Market Rally Really a Trump Effect?


Sep. 4 2020, Updated 6:57 a.m. ET

Recently, stock markets maintained their uptrend comfortably. Stock markets are trading close to all-time highs. So, what really led to the rally? Was the rally due to corporate earnings, the recent trade war truce, or the Trump effect? Some would say that it was a combination of all these events and many other aspects. However, veteran economist Robert Shiller thinks that the rally was mainly a Trump effect. According to a CNBC article, Shiller said, “He [President Trump] is a motivational speaker. We’ve never had a motivational speaker president before. He knows how to create animal spirits.”

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Stock markets and the Trump effect

President Trump’s affection for the markets isn’t new to the participants. He barely misses conveying any significant milestones in market indexes. Currently, the Dow Jones (DIA) and the S&P 500 (SPY) are trading close to record highs. They have risen by almost 24% and 29%, respectively, this year. Read The 2019 US Stock Market Crash that Never Came! to learn more.

Barring exceptions like higher tariffs, President Trump’s pro-business policies like deregulation and tax cuts have helped businesses. Although domestic corporate earnings growth was muted this year, it was relatively better considering the global slowdown. Interestingly, during President Trump’s tenure, the Dow Jones and the S&P 500 have risen more than 45% and 50%, respectively, in the last three years. With the election less than a year away, markets could witness higher-than-average volatility.

Improving trade relations

Although improving trade relations with China triggered the market’s recent rally, a firm resolution isn’t imminent. After multiple rounds of negotiations, the US and China are approaching phase one of the trade deal next month.

Markets have reacted to trade deal developments in 2019. As a result, the markets would want some kind of continuity in dealing with the trade war in 2020 due to the election in November. China agreed to purchase more farm products if the US removed tariffs. The tariffs did their job at least for a partial trade deal.

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Recently, the House of Representatives passed President Trump’s USMCA (United States–Mexico–Canada Agreement) bill, which will replace NAFTA (North America Free Trade Agreement). After an interim trade truce with China, USMCA could be another noteworthy topic for President Trump in his 2020 reelection campaign.

Trump effect is important for the markets

Notably, market participants weren’t concerned about President Trump’s impeachment earlier in December. The chances of him getting convicted in the Republican-led Senate are slim. As a result, investors focused on other developments including strong economic data and trade deals.

The US economy has been strong despite a global slowdown in 2019. The GDP growth rate has largely stayed around 2%, while global growth has been deteriorating. At the same time, China’s GDP growth rate has fallen to multidecade lows. The unemployment rate in the US fell to almost a 50-year low in the fourth quarter.

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Did the trade war backfire?

However, a recent study showed that US manufacturing has seen job losses mainly due to President Trump’s tariff war. A study by the Fed suggested that retaliatory tariffs and the increased cost of sourcing particular goods from abroad have been more than any benefits from the tariffs. As a result, there were job losses particularly in the US manufacturing sector, which led to higher prices for consumers. The Fed’s study contradicts President Trump’s opinion that the tariffs have impacted China and not the US.

Although the economy has stayed strong in the last few years, President Trump’s pro-business agenda has played a key role in boosting the markets. If he’s reelected next year, it might smooth the long-term trade resolution with China. A new president would likely increase the uncertainties, particularly regarding trade disputes.


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