Intellectual honesty requires us to look at statements objectively. The election of Trump and him subsequently becoming our President has both sides of the political spectrum in an uproar. When tons of my liberal friends were claiming that the sky was falling and the the stock market was going to crash on election night, I penned the piece below and sent it to them. Today I decided to expand upon this to give my conservative friends a bit of historical context.
1) Using the day to day market as a gauge for economic stability is fraught with error.
2) Believing that traders can see into the future and determine the economic successes or failures for a President and how that will effect the broader market is akin to believing in fortune telling.
3) If you believe that traders who receive bonuses (the majority of their compensation) quarterly, are trading based off of fears that will materialize quarters from now, you're facing cognitive dissonance. You can't on the one hand believe that Wall Street and the majority of traders are only short term investors, and believe that they are forecasting into the distant future.
4) The American economic engine is an Aircraft carrier, not a speed boat. It doesn't turn, stop, start, or speed up on a dime. The day after the election isn't going to throw us one way or another.
That said if we are going to use the market and day to day movement to delve into the mind of the market, let's see what we find. First and foremost, if we are to use the markets as a general gauge for how the markets believe a President will do upon being elected, let's use actual closings since after hours trading is a trivial volume. Second "Dow Jones’s data team says the average change on the day after Election Day is negative 0.9%," Third, one of the largest bumps after election day happened in Bill Clinton's second election. He received 1.5%.
The Dow Jones is currently at 1.70%. By the logic of using the markets as a gauge, it appears that world markets are delighted that Trump is going to be occupying the White House.
Quote for the day: "It's never paid to bet against America." ~ Warren Buffett
Just a couple of things to go along with this quote:
1) Recession happens every 7 years on average in the markets. We've been in a Bull Market for 8 years, so if you weren't expecting a pullback or a recession, you should.
2) If you thought the US was an economic powerhouse that was great for business yesterday, it is doubtful that within 12 hours the US has changed so dramatically to make it an inhospitable environment for investment.
3) Where else is the morning going to go? China, the EU, Great Britain, Russia?
4) Time is an investor’s best friend. If you have decades before you need to rely on your investments, this is a buying opportunity.
5) If you thought prices were inflated yesterday, that means that prices were always going to come down. If you thought prices were good yesterday, that means you are now presented with a buying opportunity.
However while the doom and gloom still remain for liberals, conservatives are filled with joy that the Dow has passed 20,000 points. What does that mean? Well it means that if you have money in an index fund, you most likely have more in your investment account today than you did yesterday. It also means that if you thought the market’s value was inflated last month, it’s even more inflated today. However, while the erratic movements of the market in the short term can bring us joy and pain, it is the long term positive movement of economies that will either allow us to retire without fear in our golden years.
In the beginning of this article, I mentioned intellectual honesty. It wasn’t too long ago that conservatives were stating that President Obama should not take credit for the stock market’s upswings. In fact, some historians and economists even state that the actions of the previous president are fully realized after the leave office. Regardless of your view on the causality and immediacy of a President’s actions, it is safe to say that it is highly unlikely that in less than a month this President or any President working within the bounds set up by the American constitution would be able to sway markets one way or another in any meaningful or sustainable way.
That said, let’s take a look at what the Dow Jones has done in the same time after the first inauguration of a president.
President Trump 1/20/2017 - 1/26/2017
President Obama 1/20/2009 - 1/16/2009
President Bush 1/20/2001 - 1/26/2001
Bill Clinton 1/20/1993 - 1/26/1993
President H.W. Bush 1/20/1989 - 1/26/1989
Using history and past returns as a guide, there is zero meaningful correlation between the first 6 days of returns after the first inauguration of a president and the remaining 4 or 8 years of returns. Therefore, before you let the media, the White House or anybody else spin you one way or another remember these guiding principles:
1) Recession happens every 7 years on average in the markets. We've been in a Bull Market for 8 years, so if you aren’t expecting a pullback or a recession, you should.
2) The American economic engine is an Aircraft carrier, not a speed boat. It doesn't turn, stop, start, or speed up on a dime.
3) The stock market is a future leaning market. Once Trump won the election traders already priced into the market their hopes for what a President Trump administration would mean for taxes and regulations (this is the erratic part of the market because it’s akin to predicting the future).
4) Six days (really less) of returns is almost completely meaningless and is nothing to brag about.
* All DJIA graphs and charts came from www.marketwatch.com