First we must say that we think the market is now very oversold and panicked. That is why we were on the buying side today and especially so in the last hour. Most of the cash in the US and US Core ETF portfolios is deployed as of 4 PM today. The quantitative Lev Vol and Vol strategy accounts are also deployed. Now let’s get to Presidents and Stock Markets.
Politico ran a story by Jason Furman titled “Why Presidents Shouldn’t Talk About the Stock Market,” Subtitle: “Obama learned that lesson the hard way. Trump will, too.” You can read that story here: https://www.politico.com/magazine/story/2018/02/06/trump-stock-market-216944.
We cannot speak about what presidents learn or don’t learn. But we can point to history. Presidents do poorly when they claim stock market gains as their doing. They do poorly when they give investment advice to the American public. And they do poorly when they stray into the market’s dynamic arena. Presidents, whether Democrat or Republican, hurt themselves when they do anything of the sort.
The lesson from history is stay away from the stock market if you are a politician.
Remember the 700-point decline during the financial crisis when the US Senate couldn’t find a way to pass legislation in the midst of a global economic meltdown. Remember the demise of the Bretton Woods fixed currency regime under Richard Nixon. Remember the recent Donald Trump claim in the State of the Union. The evidence for the poor mixing of political rhetoric and markets is pretty strong.
The bottom line is that markets ignore politicians regardless of their political stripes. Markets move in the very short term based on technical factors and momentum. Markets move in the medium term based on monetary policy, global trade, economic growth, and inflation expectations. And markets move in the longer term based on earnings and valuations (both relative and absolute). We are paraphrasing an excellent summary of these three stages outlined in a recent research piece by BCA Research. We cannot find the quote but recall the source.
Here is some history on what presidents have said about stock market performance. We’ve asked our researchers to make this bipartisan!
Feb. 5, 2018, New York Times
“President Trump took credit for rising stocks at least 25 times in January alone.”
Feb. 8, 2018, New York Times
“President Trump, who has taken credit for a rising stock market as a measure of his own success, complained on Twitter Wednesday that ‘good (great) news’ in the economy led to an abrupt decline in stock prices, his first comments about the stock market since its sharp drop earlier this week.
“In the early-morning tweet, Mr. Trump lamented that in the ‘old days,’ stocks would rise on good economic news, saying ‘Today, when good news is reported, the Stock Market goes down. Big mistake.’ The tweet did not elaborate on what he meant by the ‘old days’ or explain further his analysis of why stocks plummeted on Friday and Monday.”
March 3, 2009
“ ‘What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong. On the other hand, what you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.’
“The reaction [to Obama’s remarks quoted above] was swift and brutal, referring to the president as ‘Stockpicker in Chief’ and the ‘First Stockbroker’ and partisan opponents rushing to condemn the comments. A few hours later, the White House press secretary effectively walked back the president’s remarks, and for the next seven and three quarters years the president never repeated anything like this.”
“Why Presidents Shouldn’t Talk About the Stock Market”
President George W. Bush
Sept. 24, 2008, in response to the economic crisis
“I’m a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America’s financial system are at risk of shutting down.
“The government’s top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.
“More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.”
Oct. 28, 1997
“It may be disappointing, but I think it is neither prudent nor appropriate for any president to comment on the hour-by-hour or the day-by-day movements of the market.”
Oct. 20, 1987 – the day after Black Monday, Oct. 19
“Informal Exchange with Reporters on the Stock Market Decline and the Federal Deficit”
Q. Mr. President, the Democrats say that it’s your economic policies that caused that downturn on Wall Street yesterday.
The President. Yes, it’s funny, Bill [Bill Plante, CBS News], that I couldn’t understand, at the beginning, that creating 14 million new jobs, eliminating inflation – or virtually eliminating it, bringing it down-lowering interest rates, increasing the prosperity of the people – I just wouldn’t understand that that could hurt the stock market.
Q. What word will you have for investors today, Mr. President?
The President. Well, we’re in constant consultations. I think everyone has been caught by surprise in this. And it is true that at this point of the day the market is in a far better situation than it was yesterday at this time, with about the same number of sales of stock – trading of stock. But I’m very pleased and gratified with the action that has been taken so far by the Federal Reserve Board and the fact that two of the major banks have lowered their interest rates.
Jan. 12, 1978
“I think that until the question of energy is resolved, the uncertainty about this subject and the realization that our excessive imports of oil or adverse balance of trade is going to be permanent, those two things are going to contribute to the deleterious effects of increasing interest rates and also uncertainty in the stock market.”
Nov. 3, 1978
“In the last two days, the value of the dollar has gone up against the deutschemark, for instance, in Germany 8 percent. As you know, day before yesterday, the stock market went up more than it ever had in history, over 35 points. That’s an indication of confidence in our Government.”
Apparently, both President Roosevelt and President Hoover studiously avoided direct mentions of stock market performance in the wake of the 1929 collapse. We haven’t been able to find any exceptions.