The Trump effect

Forget about your politics, has Donald Trump been good or bad for investors?

Article updated: 25 June 2019 10:00am Author: Michael Baxter

When Donald Trump won the US election back in November 2016, I felt quite depressed and fully expected markets to nosedive. Instead they soared, making me feel pretty disillusioned. In the long run, things like global cooperation matter. I felt Trump represented the opposite, and as a result markets should have sunk in anticipation of weakening global stability.

So why did the markets and why did the US economy do so well as Trump was elected?

Now, I don’t want to get all smug on you, but if you have a good memory you will recall that back in 2014/15 I wrote a series of articles predicting some kind of boom in the offing for the US economy. There were lots of reasons, including evidence of the surveys. But for me, the real positive was provided by history. In the past, sharp slowdowns were followed by above average growth. But post 2008, the economic misery continued. I felt that this was creating a lot of unused potential.

I tell you that story to suggest that I am not being another anti-Trumpist when I say the economic boom under Trump was merely the economic cycle — in fact, I am being consistent.

Towards the latter period of Obama’s Presidency, US Consumer Confidence was close to the highest level this century, employment had improved enormously and stock markets had boomed.

In October 2016, when most of us expected Hilary Clinton to be the next US President, US unemployment was at 4.9 per cent, and US non farm labour had risen 161,000. The S&P 500 had almost doubled in five years, and the index was comfortably into record territory.

In the two and half years since then, the S&P 500 is up 38 per cent, unemployment is at 3.6 per cent and in the last month, non farm employment rose by 75,000.

You can interpret the data whichever way your political bias wants — a continuation of the trend in the latter years under Obama or massively better than the average performance under Obama.

I am not so sure either Obama or Trump made much difference. Obama came to power in the aftermath of the the biggest crash since 1929, so the economy struggled, Trump came to power during the long awaited recovery.

Here are the two big positives from Trump relating to investors.

One, arguably via the force of his personality he got animal spirits moving.

Two, he cut corporate tax, boosting the coffers at US companies.

There are two main negatives — from an economic point of view, though I am unhappy about the treatment of children of illegal immigrants to the US, it is not relevant to the economic story.

Firstly, trade war. Trump is the man who wrote the art of the deal, a very particular negotiating tactic. For all I know his threats of a trade war might just be bluff — except that his tariffs are already hitting some economies.

Secondly, words matter. If you express yourself in a certain way, and you happen to be President of the US, that way of doing things becomes acceptable, and some people reflect the spirit of those words in their deeds.

In my view the US has become a less tolerant place, a more inward looking country and one that preaches isolationism over global cooperation, and plays Russian roulette with the planet by de-prioritising fighting climate change.

That’s not good for many reasons, but among them, it is not good for investors, not in the long run, and if the markets don’t seem to care, that may be because they are lousy at pricing in the big picture.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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