President Trump and Obama Bobbleheads

How Much Credit (or Blame) Should a President Get on the Economy?

August 26, 2019

By Michael List
Portfolio Manager 

On Friday, China announced it would impose tariffs on additional U.S. goods worth $75 billion. President Trump responded by “hereby ordering” U.S. companies to find alternatives to doing business in China.

The “trade war” news comes after a week of rather favorable reports about U.S. consumer health: U.S. retail sales grew more than expected in July, and several major retail companies reported better than expected revenue and earnings growth in the previous quarter. As second quarter earnings season is drawing to a close, 75 percent of companies have beaten earnings expectations and earnings are up eight-tenths of a percent from a year ago (this isn’t great, but considering earnings were up 25.7 percent in 2018, the modest growth this year isn’t too alarming).

Even with this good news, clouds of slowing global growth and trade discussions (or lack thereof) linger over economic expectations for the remainder of the year.

Which all begs the question — how much credit (or blame) on the state of the economy can be given to the sitting president?

U.S. Stock Market Performance by President

The following chart, compiled by Yahoo.com, compares how the S&P 500 performed during the first 134 weeks of each presidential term dating back to Nixon:

President SP 500 Returns

A couple of important disclaimers that Yahoo doesn't necessarily touch upon: First, the sample size of this analysis is too small to draw statistically significant conclusions.

Second, it’s more likely that market and economic performance leads to Americans' choice of the next president, rather than indicating the performance of the current one. As  presidential campaign strategist James Carville so famously said, “It’s the economy, stupid.” Only one president in the past century was re-elected during an economic downturn. 

Finally, measuring the market performance 134 weeks / 938 days / 2.58 years into Trump's presidency is a completely arbitrary time frame (what about the remaining 1.42 years of term?). That's like expecting the Dodgers to win the World Series based on the fact that they sold the most hot dogs during the first 126 games of the season (which they didn't, so don't bother Googling it). 

Of course, Yahoo’s conclusion from this data is that President Obama was better for stocks than President Trump, and that Democratic party presidents on average are better for stocks than their Republican counterparts. However, playing devil’s advocate, I would note that marginal performance from first to second term is substantially higher under a Republican president.

The main takeaway is that stock prices are influenced by many factors over time, the current president being only one small part of a much larger picture. Long term revenue, earnings and valuation have a much greater impact on future returns.

How Will the 2020 Election Affect the Market?

Revenue and earnings growth are slowing, but remain positive. The 2020 presidential cycle will keep volatility elevated, but its impact will be felt more short term than long.  The stock market is near all time highs, and as we have previously written, today’s valuations stocks are likely to provide positive yet subdued results. Plus, in any market, there are always areas that offer opportunities.

At Security National Wealth Management, we stay focused on the long term, and not as much on short-term political waves or “armchair president-ing.” Talk to an advisor today about how to keep your portfolio focused on the big picture.

About the Author

Michael List, CFP®

Michael List is a Portfolio Manager, helping execute investment strategy, transactional execution and overall portfolio management for Security National Bank's Wealth Management Division. He has been a member of the SNB Wealth Management team since 2008.