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The Trump Effect: Market Gains Since Election

Griffin Scott and Ed Calley

Since November 8th, 2016, the markets have seen historical gains in every industry. The election of Donald Trump, while controversial, has undeniably resulted in growth within the markets. From the time Trump was elected to its peak at 26,392.79 on January 26th of 2018, the Dow Jones industrial average gained an unprecedented 45%. Prior to Trump, the Dow Jones had never surpassed 20,000. The S&P 500 has experienced similar gains, adding $2 trillion in market value since the election. There were subsequent rises on Inauguration day, January 7th, 2017, evident in the graphs below. The market gains since the election have raised the question of President Trump's true effect on the performance of the finance industry. There are multiple reasons for the conditions we have seen, one being a belief in how President Trump will continue to act with regards to the economy.

Confidence that Trump will continue to support growth, corporate tax cuts, and de-regulation are likely driving factors of the positive conditions. A general sentiment that Trump will act in favor of the economy has helped support this positive growth, however actual legislative action has yet to be seen. The tax reform recently passed in mid-January that provides large corporate tax cuts supports the idea that Trump will continue to foster a conducive economic environment. However, there is another side of Trump that could likely hurt the positive growth we have seen. The threat of increased protectionism and higher tariffs could have a significant impact. Due to the relative unpredictability of President Trump, it is uncertain whether the growth we have seen will continue on its current trajectory.

While there is an association between Trump's arrival to the White House and the historic market growth, this does not necessarily imply causation. Aside from tangible factors, such as the release of the next tax code and Fed interest rate hikes, the market is extremely reliant on perception and confidence. As Americans continue to portray President Trump in a pro-business pro-growth light, it is difficult to deny the implicit effect he has had on the markets. The Trump Effect is, undeniably, a very real thing.

Sources: CNBC, USAToday, Fortune, Kiplinger, The Economist

7 thoughts on “The Trump Effect: Market Gains Since Election

  1. dugganj20

    Undoubtedly, Trump has promoted certain factors of the economy such as corporate tax-cuts and de-regulaton that have resulted in growth. However, the Dow hasn't consistently been rising since his time in office. In fact, earlier this week the Dow hit its worst single-day point decline. So how does Trump learn from this to prevent it from happening in the future? While the Dow has climbed back up since its steep fall, it is necessary that economists learn how to combat dramatic drops even in a time where the president is pro economic growth.

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    1. dodsonm20

      In going off of Julia Jane, I think that it is safe to say that Trump has also made the Dow much more volatile. In 2017 there were instances where he would tweet some encouraging comments or maybe even make some promising statements that would instill confidence in the Dow and cause it to trend upward. How much of Trump's influence should be considered actually useful and how much is just speculation that eventually will fall if Trump falls short of some of his promises?

      Reply
  2. clintong20

    I think this post is interestingly convenient with this week's news. The Dow once again fell more than 1000 points today for the second time this week. Is this because of direct correlation with the Trump administration or is this an uncontrollable factor? Trump's administration has, surprisingly, had a positive impact on the economy, but following this week's events, will it remain consistent?

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  3. the prof

    The only good prediction of tomorrow's stock price is today's – the market follows a "random walk" (see Ch 10 in our text on the Efficient Market Hypothesis, something I deliberately skipped as requiring a full class, and well-covered in other parts of the W&L curriculum). So while the timing of this blog post looks unfortunate, prices could just as well bounce (further) back on Monday as fall further – it's a 50:50 likelihood.

    However, to the extent that stock prices should be higher with higher profits, we can look at many years of steady growth that have indeed raised profits. Of course we don't know how well companies do until after the fact, and need to turn that into a prediction about how profits will look this year and next. And so far the Trump Administration hasn't affected growth, for better or for worse.

    We have now noted that asset prices are inversely related to interest rates, and interest rates have indeed risen. So it's not surprising to see some moderation in stock prices. But again, it's expectations that matter, and those can remain out of synch with reality for a considerable period, and then suddenly people take stock of what's been happening, and that in turn affects stocks. [Trying to work in a pun....]

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  4. ingramk20

    Just like with economic growth, you don't want the stock market to grow too quickly too rapidly. Instead, you want steady long-run growth. I would consider, and many others have argued, that the drop in stock prices was a necessary "correction". The "correction" of the stock market is also due to Fed rate hikes intended to smooth out and sustain economic growth.

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  5. pinhof18

    A year ago, we would have wondered if this kind of a blog post were possible. It seemed that Trump's unpredictability would have crippled the stock market. Instead, as Griffin and Ed point out, the stock market appears to have seen unprecedented growth since Trump took office. However, Trump's unpredictability (what will he tweet today?) can still be seen in the market's noisiness -- as evidenced by last week's volatile downturn and upswings.

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  6. riversc20

    I find the point of causation you bring up really important; while Trump is making corporate tax cuts, as you said, legislative action has yet to be seen. This growth may just be the product of a self-regulating economy and many other factors out of the President's control. The high tariffs and protectionism you mention could very well damage the ease of international trade, which plays a vital part in our economy, along with those of other countries worldwide. I'm interested to see the economy over Trump's next two years and how they measure up to these previous 2.

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