Many political experts were shocked when business mogul Donald J. Trump won the 2016 presidential election, after Hillary Clinton was predicted to win. Based on incorrect projections, and the fact that Hillary had the popular vote, it was readily assumed by most people that we would witness the election of the first female president of the United States. This never happened, and it wasn’t the only surprise, either. When Trump became president, pundits were also surprised to witness what happened in the stock market. Stocks went up, signaling a promising market and strong faith in the economy under new leadership.
At the time of the election, Americans were warned by economic experts that a Trump White House would deliver widespread uncertainty to the stock market and have a negative effect. However, Trump’s rally in stocks, labeled as the best election year performance since 1945, demonstrates that the market has instead reacted positively to a Trump presidency. Trump’s promises to improve infrastructure, boost defense, and cut taxes and regulations are important factors working to renew confidence in the economy.
Once elected, critics of the President argued that a Trump presidency had little to do with the rise in the stock market. Instead, they claimed that the market simply tends to react well after an election. However, according to Investopedia, “When President Obama took office on Jan. 20, 2009, the Dow Jones Industrial Average (DJIA) slumped to 7,949.09, the lowest inaugural performance for the Dow since its creation.” Per Time.com, “Just days after Donald Trump’s inauguration in January, the Dow Jones industrial average climbed above the 20,000 mark for the first time.” Labeled the “Trump effect,” the stock market appears to have responded well to Trump in office.
The stock market operates on principles of supply and demand. When demand grows faster than supply, prices increase. If more people want to sell stocks than buy, prices will fall. While the laws of supply and demand determine the pricing of individual stocks that make up the market, a complexity of factors affect whether there are more buyers or sellers. They include things like economic data, interest rates, corporate performance, technological changes, inflation and deflation factors, wars and conflicts, and more.
On November 7, Trump tweeted, “Stock market hit yet another all-time record high yesterday. There is great confidence in the moves that my administration is making. Working very hard on TAX CUTS for the middle class, companies, and jobs!” There is no denying that Trump’s government performance and fiscal policies have contributed positively to rises in the stock market. When an economy is doing well, a confident market creates more demand. Thus, many believe that Trump can take at least partial credit for the successful stock market. The upbeat economy, strong dollar, solid corporate earnings, and lower unemployment have delivered newfound confidence to the market. In another November tweet, Trump wrote, “Unemployment is down 4.1%, lowest in 17 years. 1.5 million new jobs created since I took office. Highest stock Market ever, up $5.4 trill.”
This month of November, and next of December, are expected to be strong months for stock performances. This is a time of year when retail sales generally show positive signs of growth and stocks tend to do well. While some believe that cuts in corporate and personal income taxes, as recently proposed by a Trump Administration, will further help the stock market; others caution that we may be headed for a downward spiral due to ripple effects from a potential increase in the federal funds rate due to inflation. It has also been suggested that Trump’s tax change and further probes into “Russian interference” may negatively influence the currently stable market by creating chaos. Only time will tell; but so far, things appear to be in Trump’s favor.
Note: The Dow Jones Industrial Average (DJIA) is a stock market index created by Wall Street editor and co-founder of Dow Jones & Company, Charles Dow. It is used to gauge the industrial sector within the American economy. The DJIA measures the daily price of movements of 30 large American companies and indicates general market conditions.