The Trump Bump in Stocks Is Weakening

Hits: 3

If the stock market keeps dropping, President Trump could lose one of his favorite bragging rights.

Concerns about higher interest rates, Mr. Trump’s trade policies and slower economic growth outside of the United States have weighed heavily on stocks this month. The Standard & Poor’s 500-stock index is down 5 percent in October and sits 5.6 percent below its record high in September.

Still the stock market remains up a lot since Election Day in 2016, something Mr. Trump has often trumpeted. And with the economy solid and unemployment low, the recent volatility in the stock market is unlikely to have much effect on the upcoming midterm elections.

But the stock market is one of the most prominent indicators of confidence and recent weakness suggests investors have some doubts about Mr. Trump’s leadership. If the S.&P. 500 falls further, Mr. Trump will struggle to compare himself favorably with other presidents. Here’s how he compares to his predecessors in the nearly two-year period after they were each elected.

The S.&P. 500 is up 29.4 percent in the 710 days since Nov. 8, 2016. Over the same number of days after Barack Obama was re-elected in 2012, the benchmark posted a gain of 32.1 percent.

The performance of stocks under Mr. Trump and Mr. Obama fall far short of the rally that took place after Bill Clinton was re-elected in 1996. The S.&P. 500 soared 48 percent over the equivalent period.

It’s fun to debate how much credit presidents deserve for strong stock market performance, but it’s hard to know for sure. Investors take cues primarily from corporate earnings, forecasts of economic growth and whether stocks are expensive or cheap. Presidents typically have little direct influence over any of those. It’s hard, for instance, to tie Mr. Clinton’s policies to the innovation in the technology sector that helped stocks soar during his second term.

With Mr. Trump, there is some clear causality. The tax cuts that he enacted last year have lifted corporate earnings, which helped push the S.&P. 500 higher.

The rally since 2016 also stands out because it started when stocks were already quite highly valued. The price-to-earnings ratio of the S.&P. 500, which compares stock prices with the earnings of companies in the index, was 14 when Mr. Obama was re-elected. When Mr. Trump won, it was 18.

But some of Mr. Trump’s policies seem to have weighed on stocks and could continue to do so. His tax cuts that bolstered profits are causing the budget deficit to balloon, which is a growing source of concern among investors. The trade frictions that he has created have hurt the earnings of some companies. And if Mr. Trump’s tariffs on China weigh on that country’s economy, the effects could be felt around the world.

Go to Source