Richard Stone, Chief Executive of The Share Centre, reflects on Donald Trump’s first year in office.
Trump – Good for Investors, but not quite as good as Obama
It is a year since Donald Trump was inaugurated as the 45th President of the United States. Politically that first year has certainly been a turbulent one, largely fuelled by the President’s penchant for Twitter outbursts. The year has ended in perhaps a slightly better place than may have been envisaged with success in passing sweeping tax reforms and a more conciliatory tone being set with North Korea ahead of the forthcoming Winter Olympics.
Donald Trump’s approval ratings plummeted after he took office, setting a new record for reaching a negative overall approval rating of just eight days in office. He has remained unpopular since, although towards the end of 2017 his approval ratings did improve slightly from their low of 34% to 40%.
For personal investors though there is much to cheer about Trump’s first year in office. The stock market has set many new record highs during the year. The Dow Jones Industrial Average index has risen c.32%, currently standing just above 26,000 having started below 19,800 the day before Trump took office. That represents a phenomenal return for investors at a time when the return on cash is close to zero.
This increase in the stockmarket in the first year of office compares very favourably with the performance during the first year of George W Bush, the last Republican President when the market fell about 8% and with Bill Clinton’s first year in office when the market rose 20%. However, it is not quite as good as the c.35% seen in Barack Obama’s first year in office back in 2009.
There are a number of reasons why the market has performed strongly during Trump’s first year:
- The US economy continues to perform strongly and the IMF has increased its forecasts for global economic performance.
- Interest rates have increased modestly but remain at low levels.
- Tax reforms are expected to deliver significant increases in corporate earnings and potentially dividend payments.
- There are a number of large government spending projects, such as the infamous wall between Mexico and the US which will boost activity.
- The overall approach to business and regulation is expected to be more accommodating than has been the case historically.
So, despite having difficulty shaking off allegations of inappropriate ties to Russia and having failed to overturn Obama’s healthcare reforms, Trump has delivered a programme including the most recent tax reforms, which is seen as being good for growth and business and the market has responded accordingly.
Perhaps most surprisingly of all given the political ups and downs of the past year, including the ratcheting up of nuclear tensions with North Korea and Iran, the market has been very stable. Volatility is at record lows. The VIX Index, a measure of volatility based on the US S&P 500 Index, is currently at less than 11, and has been for much of the last year. This compares to a peak in 2008 during the financial crisis of 60 (it never went below 20 in Obama’s first year in office).
The next big challenge for Trump politically within the US is the mid-term elections later in 2018. Currently he has a Republican controlled Congress but that could easily change as a result of those mid-term elections and if that happens then further progress with his programme of healthcare, regulatory and tax reforms may become more difficult and the political battles more bitter.
As commentators reflect on Donald Trump’s first year in office, and bookmakers are offering odds of even money that he is impeached or resigns before the end of his first term, personal investors may be reflecting that he has at least been good news for their savings and investments. Any investors with general exposure to US markets will have seen their investments rise in value substantially over the course of the last year and they have done so steadily and without any significant shocks. Many will be hoping that continues, or at the very least the markets hold those levels and he does nothing too unexpected to spook the markets away from their current values.