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