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