Is the Trump bump here to stay?legacy
As President Donald Trump hit his 100th day in office at the end of April, the Dow Jones Industrial Average had its best performance in the last 60 years under a first-term president for that same time period.
Since election day, the Dow has surged upward nearly 14% due in large part to Trump’s business-friendly policies, including his desire to repeal and replace Obamacare, a tax reform proposal that aims to cut taxes for the middle class and corporate America, rolling back regulation on important sectors such as energy, and boosting infrastructure spending.
The “Trump Bump” is not just limited to industrial stocks, however. It has spread across the entire market as evidenced by an 11% growth in the S&P 500 and a 16.5% rise in the Nasdaq Composite Index. In terms of dollars, Trump’s election and economic agenda have added slightly over $3 trillion dollars to the value of the market.
For everyday Americans that means a nice raise in the value of their 401ks and IRAs. In practical terms, if an individual has $100,000 or more invested in the market, the market rally could be adding years to their retirement nest egg.
So with the market now at an all-time high, it has many investors asking, is the Trump rally here to
stay? Many economists believe the answer is it depends. The fact is, a good deal of the market growth we have experienced is due solely to investor optimism. Hard economic numbers are not yet available or meaningful because it is too early in Trump’s presidency to “read the tea leaves”.
However, most investors like the direction the President is headed with the economy. This is supported by a recent Fox News poll conducted June 25-27th 2017. According to that poll, 48% of voters approved of Trump’s handling of the economy while only 43% disapproval. That was his highest mark since taking office. Those numbers reveal optimism on the part of voters, especially when you factor in the turbulent political environment in which we live.
The bottom line is the continued rise in the market will depend on three big factors. One, the passage of a healthcare bill. This legislation must effectively lower the cost of insurance for individuals and businesses to have a positive effect on the market.
Two, tax reform must become a reality. The code needs to be simplified and the rates need to be lowered for middle-America. That will stimulate spending, which in turn will boost the economy. But more importantly, the tax bill must lower rates for corporate America. The increase in net income will generate greater spending in plant expansion and inventory. That means more jobs and higher income for the middle-class!
Finally, we need peace and stability abroad. Any crisis in North Korea, the Middle-east, or with Russia, could upset the apple cart. Foreign affairs are not always in our control, but Trump needs to send a clear message that he will do whatever it takes to maintain peace. If he is successful on these three fronts we may all be singing ”Happy Days Are Here Again.”