Murphy's Law: Can Trump take credit for stock market success?

Among other ideas of the alternate universe in which our president’s Twitter feed resides is the concept that by his merely being in office, the stock market is roaring and jobs are appearing out of thin air. In truth, he has had almost nothing to do with the record highs we are seeing across equity markets.

The president inherited a bull market in its eighth year of expansion, one which was drastically strengthened by low interest rates. (Low interest rates make money inexpensive to borrow, thus people and businesses spend more and grow the economy.) Key factors in this recovery are the Federal Reserve policies of low interest rates and quantitative easing (in which the Fed purchases securities to lower short-term interest rates and increase the money supply). While no individual can take full credit for the current bull market, the closest person would be current Federal Open Market Committee Chairwoman Janet Yellen, whose clear, consistent Fed policy and messaging have enabled markets to react calmly to interest rate changes with near record-low volatility.

Most of the rise in the stock market in recent years is simply because American corporations are doing very well. Ratios of debts to earnings hover near historic lows reached in 2014, indicating that corporate profits are growing faster than corporate debts. This means companies are more valuable, and thus their stock prices increase.

With his promises of tax reform aimed at promoting American business, the markets did rally on his election. However, the sectors that saw large gains immediately after the election, like defense stocks and financials, slowed down relative to the rest of the market in the first two quarters of 2017. While two slightly different versions of tax reform bills passing the House and Senate is the closest thing the Trump administration has to what they would call “progress,” even this is not enough to credit our president for the market’s performance. The Senate’s retaining of the Alternative Minimum Tax rate for corporations eliminates tax breaks related to intellectual property, so tech firms that have led the market’s rise may actually see their effective taxes go up, hurting profitability. The Republicans cannot take credit for the market’s rally, but their hastily and sloppily written bill was a factor in Monday’s tech sell-off, which saw the NASDAQ fall over 1 percent.

Donald tweeted on Monday to “check your 401(k)s since election.”  Not only is he not responsible for their gains, but nearly half of Americans do not have retirement savings. Many in the middle class to which he appealed are likely to have little or no retirement savings. Like the rest of Donald Trump’s charades, all that glitters is not gold when it comes to his administration’s economic impact. He inherited a strong stock market and is still unable to get any legislation through that would have a real-life economic impact. If Donald thinks the stock market’s success is due to his presidency, void of legislative accomplishments, he needs to head back to Wharton to relearn how the stock market works. Unfortunately for his ego, the stock market is one of the few things that is bigger than he is.