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August 8, 2016

What is Trump’s Deal?

We have to be careful when drawing conclusions about a president’s affect on stock market and the economy. 
For example, traditionally the pro-business Republican Party is regarded as good for the stock market, while the more regulatory-minded Democratic Party is viewed as an impediment to economic growth. However, no evidence supports those notions.
In fact, since the end of World War II the stock market has racked up an average yearly gain of nearly 10% under Democratic presidents, versus 7% under Republican presidents.  Then again, the argument is made that a sitting president’s economic situation is largely up to the policies of his predecessor, since the economy tends to turn as quickly as an oil tanker. 
If Hillary Clinton wins the election, Wall Street generally will know what to expect since she has vowed to continue the policies of her Democratic colleague, Barrack Obama. Since President Obama took office in January of 2009 the S&P 500 has nearly tripled in value, while the unemployment rate has dropped in half from its peak in October of the same year. Admittedly he started with an economy deep in a hole, and capitalism-based economies tend to self-correct over time. 
But if Trump wins the election, Wall Street has little idea what to expect. Yes, he has vowed to be “the greatest jobs president God ever created.” And he has promised lower taxes and a larger military while not cutting entitlement programs. That type of populist campaigning works well for winning your party’s nomination, but doesn’t soothe the nerves of the markets, which hate uncertainty.
If Trump does become president, he may have to learn a new “Art of the Deal.” It’s the art of compromise, and it’s something Ronald Reagan learned the hard way. Reagan changed tactics in 1982 after the U.S. economy and stock market continued their downhill slide during the first two years of his presidency. He began to negotiate with the other side and mastered the art of compromise, which helped the final six years of his administration be a resounding financial success.
If Trump can’t compromise and the political stalemate continues in Washington, that’s not necessarily a bad thing as far as Wall Street is concerned, short term. And given how many Republicans seem to be lining up against their own nominee lately if Trump becomes president stalemate may come not just from clashes with Democrats, but from members of his own party.
We hope whoever gains the White House will be able to work with the opposition party, because eventually some changes to our tax code, social security and the size of entitlement programs will need to be implemented to reign in our growing national debt.
If you’re worried (or petrified) about a Trump or a Clinton presidency as far as the economy goes, take a breath. That same landmark paper (Presidents and the U.S. Economy: An Econometric Exploration) that showed that the economy did better under Democrats than Republicans also came to the conclusion that the president doesn’t have a great deal of influence over the economy. Instead, Princeton professors Alan S. Blinder and Mark W. Watson said factors outside the control of a president, such as oil shocks, productivity and the international environment, were far more influential than presidential policies.
As the election season moves into full gear we’ll provide analysis of the candidates’ policies and their likely affect on the market in general and our portfolio holdings in particular. But we also recognize politics is just one factor in the health of your portfolios, and we promise not to get caught up in what’s sure to be a particularly rancorous fight for the White House.
Courtesy of Jim Pearce, Investing Daily (More from Investing Daily Here
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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