Skip to main content

If the stock market keeps dropping, U.S. President Donald Trump could lose one of his favourite bragging rights.

Concerns about higher interest rates, Mr. Trump’s trade policies and slower economic growth outside of the United States have weighed heavily on stocks this month. The S&P 500 is down 5 per cent in October and sits 5.6 per cent below its record high in September.

Still, the stock market remains up a lot since presidential election day in 2016, something that Mr. Trump has often trumpeted. And with the economy solid and unemployment low, the recent volatility in the stock market is unlikely to have much effect on the coming midterm elections.

But the stock market is one of the most prominent indicators of confidence and recent weakness suggests investors have some doubts about Mr. Trump’s leadership. If the S&P 500 falls further, Mr. Trump will struggle to compare himself favourably with other presidents.

The S&P 500 is up 29.4 per cent in the 710 days since Nov. 8, 2016. Over the same number of days after Barack Obama was re-elected in 2012, the benchmark posted a gain of 32.1 per cent.

The performance of stocks under Mr. Trump and Mr. Obama fall far short of the rally that took place after Bill Clinton was re-elected in 1996. The S&P 500 soared 48 per cent over the equivalent period.

It is fun to debate how much credit presidents deserve for strong stock market performance, but it is hard to know for sure. Investors take cues primarily from corporate earnings, forecasts of economic growth and whether stocks are expensive or cheap. Presidents typically have little direct influence over any of those. It is hard, for instance, to tie Mr. Clinton’s policies to the innovation in the technology sector that helped stocks soar during his second term.

With Mr. Trump, there is some clear causality. The tax cuts that he enacted last year have lifted corporate earnings, which helped push the S&P 500 higher.

The rally since 2016 also stands out because it started when stocks were already quite highly valued. The price-to-earnings ratio of the S&P 500, which compares stock prices with the earnings of companies in the index, was 14 when Mr. Obama was re-elected. When Mr. Trump won, it was 18.

But some of Mr. Trump’s policies seem to have weighed on stocks and could continue to do so. His tax cuts that bolstered profits are causing the budget deficit to balloon, which is a growing source of concern among investors. The trade frictions he has created have hurt the earnings of some companies. And if Mr. Trump’s tariffs on China weigh on that country’s economy, the effects could be felt around the world.

New York Times News Service

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe