On Wednesday, the Dow Jones Industrial Average broke 20,000 for the first time in history, exciting cheering traders on the floor of the New York Stock Exchange. This must come as a shock to those leftists who thought President Donald Trump’s election would crater the stock market. New York Times faux-economist Paul Krugman wrote, “[T]his is my specialty…If the question is when markets will recover, a first-pass answer is never.” Kurt Eichenwald of Vanity Fair tweeted in September, “In preparation for a completely unpredictable Trump presidency, I sold all stocks my kids’ education accounts today. I urge u to do same.” Professor Eric Zitzewitz of Dartmouth College said that the global markets would tank by 10 percent. The former chief economist for the Intrnational Monetary Fund said “we should expect a big markdown in expected future earnings for a wide range of stocks – and a likely crash in the broader market.” Bridgewater Associates told all of its clients that if Trump was elected, the stock market could plummet 2,000 points in one day. Citigroup forecast that if Trump won, the S&P 50 would drop between 3 percent and 5 percent. Instead, by the end of the day following the election, the DJIA had risen 1.4 percent and the S&P 500 by 1.1 percent.
So much for all of that.
On the Republican side, the continued stock market rally has led to chortles and triumphalism. Kellyanne Conway tweeted, “The Trump Effect.” Fox Business tweeted, “President Trump’s early policy follow through propels Dow to 20K.”
There’s one problem with this logic: for years, Republicans rightly stated that the success of the stock market under President Obama could not be attributed to his occupancy of the Oval Office. Obama routinely bragged about the success of the stock market on his watch – he used it as a campaign point in 2012 and while campaigning for Hillary Clinton in 2016. The stock market hit its low of 6,626.94 on March 6, 2009; when Trump was elected, the DJIA was at 18,332.74. That’s a 277 percent increase over the course of his term. Today’s stock market is at 20,051.20 as of this writing; that’s a 9.4 percent increase.
Here’s the point: you can’t just switch economic metrics of success the moment your guy wins the presidency. Undoubtedly, if the market had crashed after Trump’s election, these same Republican commentators would be claiming that the market was overvalued under Obama.
And here’s the reality of the stock market: the market tends to price in future risks far in advance of those risks materializing. More importantly, the vast majority of stock trading isn’t done on the basis of projecting political footballs, but on valuation of specific assets and liabilities. Very few companies on the DJIA were likely to be significantly effected directly by the election, nor were they effected tremendously by Obama’s election. Underlying economic fundamentals are impacted by a broad range of factors ranging from global economic climate to Congressional policymaking. Trump’s regulatory policy should be good for the stock market; his tariff policy should be bad for it. But mostly, Trump will have little impact on the stock market. The economy is simply too complex for the government to control without massive intervention.
Which is a good thing.
That means that Democrats who panicked at the prospect of Trump’s election were overstating – as usual – how much government effects Americans’ everyday lives. It also means that Republicans who want to credit Donald Trump using the same metrics they denied Obama should be grateful that neither Trump nor Obama radically shapes the market.