A Short History Of The Donald Trump Effect On The American Stock Exchange

american stock exchange

Donald John Trump, the 45th and current president of the United States of America, was a businessman and TV personality before he entered politics. He ran for the president in 2016 as a Republican, defeating 16 other candidates in the primaries.

He was elected over the famous Democratic candidate Hillary Clinton to become the oldest first-term US President. Trump’s current net worth is almost USD 2.1 billion as per Forbes, which makes him the first billionaire president.

Presidents take a lot of credit and blame as people feel they can influence the share market and its performance while they are in the office. But in reality, their contribution is very insignificant.

President Trump is the first person to use social media to such an extent while he is still in power. He regularly tweets his thoughts and opinions through his own twitter handle.

Mr. Trump names publicly traded companies more often than any other president. These tweets by the president openly naming companies on the share market relate to his feelings about the company and hold the power of shifting common people’s trust over that company.

People believe that the president is responsible for implementing and enforcing market laws and regulations, but it is the Congress that sets tax rates, passes bills, and enforces regulating laws over the economy.

However, it has been noticed that negative tweets by Mr Trump have sometimes resulted in a dip in the company shares. He is a credible source of information.

He has insider information about the government’s policies and regulations, which makes him such. When a company receives attention from the president, it might encourage political supporters to buy the company’s products.

This free advertising by the president of the US may sometimes affect the share market. Shares of a particular company might drop if president Trump tweets negatively about it, or vice-versa.

Are you a pattern day trader looking for extended hours trading? Alpaca is a great tool that can help you out.

President Trump’s political positions can be termed as populist as he has supported various political positions throughout his term, some of which were not consistent with even the policies of the Republic Party.

President Trump emphasizes that people should judge his presidency based on the gains of the stock market right from the day after elections. The share market soared right after the win of Mr. Trump’s presidential election.

The S&P 500 gained 20% in 2017 as traders were looking forward to tax cuts and remunerations promised by Mr. Trump during his presidential campaigns. This phenomenon came to be known as “The Trump-bump.”

The Effect Of Trump Assuming His Position As POTUS

Expensive Stock Market

Starting from the end of 2019, a lot of investors speculated that Trump would provide tax relaxations, as he stated in his campaign. Looking at this, they started ingesting a lot of money in the share market.

The prices increased, but the companies could not keep up fast enough, and the earnings reduced, resulting in a diminished value of the share market. The average income paid by S&P 500 companies also derailed because of the same reason.

As a result of this campaign, the stockmarket became expensive. Although the market showed good growth overall, the Price to Earnings ratio (P/E ratio) increased.

A lower P/E value suggests better value as opposed to a higher P/E value. The CAPE ratio also increased, and the dividend yield decreased, suggesting the same trend.

US Government Bonds

The prices for the US treasury or government bond declined sharply during the year 2017. This happened because the US Federal Reserve increased rates from 0.5% to 1.5%.

The markets foresaw this as an opportunity, and they thought further increase in the Federal Reserve will be observed soon. This had a contrasting effect on the value of US government bonds.

stock exchange

The share market performed very strongly. This was because of the inflationary expenditure by the Trump administration. When the market is rising, investing in government bonds becomes less attractive because they pay a fixed income.

This was another reason why the value of government bonds declined during the first year of Trump’s administration.

The US-China Trade War

Starting in the year 2018, a trade war between two important economies in this world, the USA and China. The USA started imposing tariffs and trade barriers.

The US did this to ensure that China will make modifications to its current trade disciplines, which, according to Trump, are “unfair.” Trump asked the USTR to review and apply tariffs on USD 50-60 billion worth of Chinese goods.

China reacted to this by raising tariffs on 128 goods it ships from America. Investors got confused by the conflict. It propelled ripples within the stock market.

Due to this trade war, Dow Jones Index Average hit its lowest in months when it fell by 600 points at the end of 2018. By August 2019, it further collapsed 800 points and then again by almost 200 points within the next ten days.

COVID-19

Corona Virus or COVID-19, as we call it, has resulted in deaths of almost 74 thousand people in the USA, while more than 1.2 million people are already infected.

This global pandemic has created a doomsday situation for economies all around the world and the USA too. Share markets are on a continuous meltdown. The DJI average stood almost 5% below where it was when Trump was sworn in as the president.

The shocks have resulted in a great depression. More than USD 8 trillion in shareholder value was destroyed. Volatility Index, which measures investors’ mood, is on the high-rise.

On four occasions, automatic circuit breakers stalled the trading to halt falling sell-offs.

Conclusion

Although the situation in which the US share market is in right now, it seems irreparable. The decline came weeks after Donald Trump thumped his back over twitter when he claimed to create the “highest stock market in history, by far.”

This plunge is not the fault of Mr. Trump, but he kind of brought this upon himself when he forced people to look at his achievements through the rises and falls in the stock market.

Donald Trump believes the market will take care of itself during this pandemic. He believes that the market will survive, no matter what.

Although he has a history of making policies and laws which immediately affect the share market, the public is eagerly waiting for his next moves during the COVID-19 crisis.

Related posts