Ever since his improbable victory in November 2016, U.S. President Donald Trump has been inextricably tied to the fortunes of the stock market. At no time in modern history has the leader of the free world made rising share prices such a singular barometer of his success, or claimed so much credit for the record-shattering run.
But now, it’s all coming crashing down.
After a stunning sell-off that ranks with the most violent ever, the Trump bull market — punctuated by his trademark tweets — is being laid low by a worldwide pandemic that threatens to sink the global economy. The Dow Jones Industrial Average has lost more than 30 percent of its value in just over a month, wiping out all its gains since Trump was inaugurated three years ago and putting the rally since Election Day in jeopardy.
It’s a remarkable comedown for a president, and a market, that had been able to weather everything that came their way. Neither impeachment nor the trade war with China could knock either one off their pedestals. But now, with the human toll of the coronavirus outbreak getting worse by the day and the world grinding to a halt, one of Trump’s most compelling selling points for his 2020 re-election — a strong U.S. economy backed by a roaring stock market — has all but unraveled.
“The old adage is, if you’re a president, don’t talk about the stock market — it can be a fickle friend,” said Steve Chiavarone, portfolio manager and equity strategist with Federated Hermes. “Trump absolutely has in a lot of ways used the stock market as a report card for his economic policies. Insofar as that was the appropriate measure, the marks were pretty good — until now.”
To be sure, the market surged as soon as Trump was elected, adding close to 8 percent in the 2½ months before his inauguration, and could of course rise again. Gains could quickly build should the virus’s spread be arrested, for instance.
Right now, however, the president and his administration are dealing with a crisis and, in this environment, the market is reacting more to outbreak headlines and emerging liquidity needs rather than acting as a referendum on the president’s policies, said Chiavarone.
Losses have been swift, catching even the pros off guard, as the record-long bull market spiraled to its end at an unprecedented pace. Investors are rushing for the exits as a deadly outbreak sweeps the globe, forcing businesses to close and entire cities and even countries to lock down. No one is quite sure when it will end, and it’s making it near impossible to place a price tag on stocks.
The equity market’s ride under the current administration hasn’t always been smooth. In 2018, the S&P 500 dropped a hair shy of 20 percent before surging 29 percent the next year, one of the best periods in the last two decades. Before the latest tumble, U.S. companies had added roughly $12 trillion in value under Trump’s tutelage, leaving the president highlighting 401(k) performances as recently as January.
Dan Suzuki, Richard Bernstein Advisors deputy chief investment officer, wouldn’t be surprised if all the boasting goes quiet.
“Trump is a great marketer, so he’s going to always use the stuff that supports him,” Suzuki said. “When the stock market’s ripping, he’s going to tell everyone it’s confirmation of the good job he’s doing. When it’s not, you’re either not going to hear about it, or that it would have been worse under somebody else.”
That hasn’t stopped him yet. In a press conference Monday when asked about financial markets, Trump said we’ll likely see a “tremendous surge,” adding, “Once the virus is gone, I think you’re going to have a stock market like nobody’s ever seen before.”
Some were encouraged by the address, even after the Dow plunged 3,000 points to its worst day since 1987. The president has made prescient stock market forecasts in the past, such as during the Christmas 2018 sell-off, when he touted “a tremendous opportunity to buy.” That coincided with the bottom of the rout. But Trump also tweeted on Feb. 24 that the stock market was “starting to look very good” to him. The S&P 500 has dropped more than 25 percent since then.
“In a weird way, I was encouraged by the fact he was focused on the public health crisis versus worrying about Powell or the Fed or the economy,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “You do that first, and then worry about the economy second, and the stock market will anticipate the rebound in the economy.”
Consider the historical relationship between the economy, stock market performance and re-election. Thirteen times has the S&P 500 plunged into a bear market in the last 93 years, and in only two of those instances did the economy not shrink within a year. According to Jeff Mills, chief investment officer for Bryn Mawr Trust, only one time has the president won re-election when experiencing a recession in the two years before an election — in the 1920s.
In 23 presidential elections since 1928, the stock market has been a good predictor of the ultimate result in 20 of them, data compiled by LPL Research show. If the S&P 500 was up three months before voting day, the incumbent party almost always won. The opposite is true too.
“They may not say it publicly, but the Trump administration is keenly aware that the market can serve as a proxy for the president’s approval rating,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors. “President Trump is a fair-weather fan of the stock market, and I would expect he will only draw attention to and claim credit for market performance when it’s moving in his favor.”