Posted on Nov 3, 2020 at 6:00 p.m.
Donald Trump loves the financial markets, especially when they are going up. Since his election in November 2016, Wall Street has offered him many opportunities to congratulate himself. The main US indices have shown very solid performances over the past four years.
The Dow Jones and S&P 500 climbed more than 50% as the Nasdaq, the quintessential tech index, more than doubled. Historical records have fallen at a frenetic pace, symbolic steps taken one after the other. The famous Dow Jones index has closed at a record high more than 130 times under the current term.
A Trump effect? Not necessarily. The rise of just over 50% of the S&P 500 during the Trump years is similar to the increase in the index under each of Barack Obama’s terms. And the periods of increase have been punctuated by falls, sometimes severe, including several caused by the president himself. On closer inspection, the markets have not always followed the path traced by the tenant of the White House.
Not the market favorite
The relationship had not started auspiciously. Protectionist, populist, inexperienced and inconstant, Donald Trump was not the favorite of the markets which feared a resurgence of volatility. Shortcomings quickly forgotten in the face of the prospect of a significant drop in taxation and deregulation at a forced march thanks to a Congress acquired by the president.
US banks have also benefited greatly from the drop in regulatory pressure. They flourished under Donald Trump, especially when compared to their European rivals. The banks sub-index in the S&P 500 has gained almost 6% in four years, when its European counterpart in the STOXX has plunged almost 50%.
But once the tax reform was passed, it was the protectionist tendencies of the American president that set the pace for investors’ agenda. The trade war with China marked the spirits, and it is difficult to find a trade treaty signed by its predecessors which has not been, at one time or another, questioned by Donald Trump. South Korea, the European Union, and even Canada and Mexico have at one time or another been in the sights of the US administration.
What put the nerves of investors to the test. Volatility picked up during the second part of his term, with a succession of more or less violent falls followed by significant rebounds. The VIX, which reflects volatility in financial markets, experienced several peaks at over 30 under the Trump era.
“The stock market course under Donald Trump’s mandate was marked by trade tensions”, emphasizes Wilfrid Galand, of Montpensier Finance. Particularly in 2018, with the first tensions in February before a more pronounced drop at the end of the year, partly linked to trade disputes. The worst year in terms of stock market performance since the 2008 crisis with a 7% decline in the S&P 500. “Markets love tax and regulation relief, but not protectionism,” he sums up.
Sector performance testifies to the president’s ultimately limited influence on the markets. While Donald Trump has made the defense of fossil fuels, from coal to shale oil, one of his priorities, “Nothing could prevent the decline of fossil fuels on the stock market”, emphasizes Wilfrid Galand. The energy sector in the S&P 500, made up entirely of oil and gas producers, has slipped 57% since November 2016.
Conversely, despite its virulent and recurring attacks against Google, Facebook, or even Amazon, it is the tech giants who have drawn the clues lately. The title of Google has doubled on the stock market, while Apple and Amazon have jumped nearly 300% in four years. And the headline of the “New York Times”, public enemy number one of Donald Trump, has never performed so well in the markets. Listed on the NYSE, the stock almost quadrupled under his administration.
The false note of October
The coronavirus crisis weighs on investors. The second wave of the epidemic rocked the markets on both sides of the Atlantic. The US indices recorded their worst performance in October since March. The last week was particularly painful, with the S&P 500 falling 5.6%. This was the largest drop suffered by US markets in the week leading up to the election. The previous record was in 1932, with a 3% drop, according to data compiled by the Bloomberg agency.