Catherine Rampell: Trump puts too much stock in the stock market

By CATHERINE RAMPELL
January 14. 2018 12:38AM
U.S. President Donald Trump attends a ceremony at which the Interdict Act is signed into law, which provides Customs and Border Protection agents with the latest screening technology on the fight against the opioid crisis, in the Oval Office of the White House in Washington D.C., Jan. 10, 2018. (REUTERS/Carlos Barria/File Photo)




PHILADELPHIA - Whenever unflattering news comes out, President Trump resorts to one of two strategies: attack some unrelated culture-wars punching bag (NFL players, the media, "Crooked Hillary") or brag about the stock market. In the past month, he's tweeted about stock prices more than every other day, on average.

According to Trump, the rising market is evidence of how awesome his presidency has been for the U.S. economy. At one point, he even touted a confused (i.e., wrong) claim that equity market increases were tantamount to wiping out our national debt.

Trump often complains that journalists ignore what's happened to the stock market under his watch, and particularly his record compared with former President Barack Obama's. As he recently tweeted, "Can you imagine if 'O' was president and had these numbers - would be biggest story on earth!"

So, let's talk about why boasting about market movements is a bit boneheaded, shall we?

First and foremost, stock markets don't reflect the underlying health of the economy. Or the financial security of the middle class. Or any other broader measure of social welfare, for that matter.

Think of stock prices as a claim on the after-tax profits of a firm. Trump just signed a bill that cut taxes on companies. This means their after-tax profits will rise even if companies don't expand, become more efficient, or make any other pre-tax changes.

Of course, then, stock prices should go up. If they didn't, something would be very wrong.

"Shareholders think they have more money in their pockets. That's because, lo and behold, they do!" MIT economics professor David Autor told me at the annual American Economic Association meetings here last weekend.

But, Autor adds, that doesn't mean society got richer; we just shifted some money around: "This was a huge transfer of wealth away from taxpayers, and to corporations."

Sure, corporations may ultimately be owned by people - but those shareholders are predominantly the richest Americans (and lots of foreigners, too).

Second, markets can also fall, making it super risky to tie your administration's success to stock prices.

Stock prices have been rising fairly consistently since March 2009, meaning we're already in the second-longest bull market on record. It ain't gonna last forever. What happens when, inevitably, things go south?

Perhaps Trump plans to start calling market data "fake" if trends turn inconvenient for him, just as he did with unemployment data.

Third, if the media were to judge Presidents by stock performance, Obama would actually look better than Trump.

From Obama's inauguration to Jan. 8 of the following year, the S&P 500 went up 42 percent; during the same period of Trump's presidency, it's gone up half that, at 21 percent. As for the Dow Jones Industrial Average, the numbers were 34 percent vs. 28 percent, respectively. (Note: For lots of reasons, the S&P 500 is more representative of the U.S. stock market than the 30-company Dow Jones Industrial Average. For example, the Dow is price-weighted, and a single expensive stock can cause big swings.)

It would be silly, though, to credit Obama for the bounce back following the Great Recession. Just as it would be silly to credit Trump for the tail winds he inherited from the Obama years, even before tax cuts passed.

Markets do what markets do, and it's often difficult to explain why. There's a reason they're dubbed "animal spirits." Trump, perhaps the most animalistic of spirits, may think his constant puffery is boosting markets. And perhaps it has had an effect. But his ever-changing threats of trade wars, government shutdowns, and nuclear apocalypse could arguably be making investors more nervous, too.

Finally, a point that hasn't received enough attention: U.S. stock values may be up, but they're up more in the rest of the developed world than they are here.

As noted, the S&P 500 is up about 21 percent since Trump took office. Now look at MSCI's index of securities in developed countries across Europe, the Middle East, Asia and the Pacific (i.e., excluding North America). That's up 22 percent, just a hair higher.

If Trump's economic platform is truly single-handedly responsible for stock market gains, it's hard to explain why it would benefit the rest of the developed world more than it benefits us.

Especially if you adopt Trump's "America First" view of the global economy as essentially zero-sum.

The point isn't that U.S. equities are doing badly. They're doing quite well. They're just not anomalous. We're in a bull market that long predates this administration. Given that, plus the global context, it's ridiculous - and risky - for Trump to use stocks as a benchmark of his administration's success.

Catherine Rampell's email address is crampell@washpost.com. Follow her on Twitter, @crampell.