Faced with record unemployment, skyrocketing federal debt and plummeting GDP, President Donald Trump has clung to rallying equity markets fueled by tax and regulation cuts as a triumph of his administration's economic agenda and a key asset for reelection.
"We have record stock markets," Trump told supporters during a Sept. 3 campaign event in Pennsylvania. "Your stocks are going up."
However, at 49.7%, the S&P 500's gains during his first term have largely been in line with previous administrations and are about one-third lower than at a similar stage in the Obama administration.
Before the coronavirus hit, toppling the S&P 500 from its record in late February, the benchmark stock index was up nearly 50% from Inauguration Day in 2017. The S&P 500 has since gone on to reach new highs as the Federal Reserve slashed rates and provided massive support for financial assets.
President Barack Obama, who saw the S&P 500 jump 182% during his eight years in the White House, had a 74.7% jump in the large-cap index from his inauguration to Aug. 31, 2012. President Bill Clinton saw a 50.5% increase in the S&P 500 at the same point of his first term in office, while President George H.W. Bush saw a 51.2% jump over a similar time frame. The S&P 500 rose 209.8% during Clinton’s presidency and 44.5% during George H.W. Bush's presidency.
While government policy may have short-run effects on stocks, longer-term trends tend not to be affected, and that is likely to be true for Democratic presidential nominee Joe Biden if he is elected, said analysts interviewed by S&P Global Market Intelligence.
The long-term stock rally that began in the ashes of the financial crisis early in Obama's first term would probably have continued if Hillary Clinton defeated Trump in 2016, although Trump's pro-market policies have likely amplified the market's gains, said Edward Moya, senior market analyst with OANDA.
Trump's main policy impacts on the stock market — 2017's tax cut and the trade war with China — may have canceled each other out. The S&P 500 returned 21.2% in 2017 followed by a 4.8% drop in 2018 as tit-for-tat tariffs were imposed by the Trump administration and that of his Chinese counterpart Xi Jinping.
"It was pretty clear that the tax cuts that Republicans and the administration enacted ... spurred stocks higher in an aging bull market," Phil Toews, CEO and portfolio manager at Toews Corp., said in an interview.
Other policies were less impactful from the market's point of view.
Despite taking the ax to reams of Obama-era environmental legislation and pushing for the promotion of domestic fossil fuels and greater production of U.S. crude oil and natural gas, the S&P 500 Energy index has declined by 51.3% during Trump's presidency. It is the only sector that has lost ground since his inauguration.
More important for energy stocks was the oil price war between Russia and Saudi Arabia and the collapse in demand as the pandemic set in.
"The drivers for energy stocks are bigger than any Trump policy," said Moya with OANDA. "Trump's decision to abandon the Paris Accord and negotiate with the Chinese to purchase American crude was not enough to overcome the collapse in oil prices."
Similarly, analyst believe the jump in tech stocks had little to do with White House action and may have been hindered by Trump's trade war with China. The S&P 500's information technology sector jumped more than 159.8% between Trump’s inauguration and the end of August, the most of any sector over that time.
That happened even as Trump enacted policies, including limits on skilled immigration, that the sector has railed against. Amazon.com Inc. has risen 337% since Trump was inaugurated, even as he engaged in a war of words with Amazon founder Jeff Bezos and criticized his business.
Trump has suggested that the stock market's strong showing under his tenure would end if Biden was elected.
"We’re having record job growth and a booming stock market, but Joe would end it all and close it all down," Trump tweeted Aug. 24.
While analysts see former Vice President Biden's tax policies as a negative, history suggests he would be quite unlucky not to enjoy another bull run under his watch.
The last U.S. president to experience a declining stock market during their administration was George W. Bush. The S&P 500 was down about 17.8% at the same point of his first term as Trump is now, and the index dropped more than 40% during Bush’s eight years in office. Much of that decline took place during the Great Recession.
On Biden's side could be a unified Congress, which analysts agreed could strengthen the next president's effect on stocks.
U.S. equities would see a 10% to 12% decline shortly after November's elections if Biden wins and Democrats take back the Senate and retain the House of Representatives, said Peter Cardillo, chief market economist with Spartan Capital Securities.
Such a sweep by Democrats in November’s federal elections would be met with "strong selling" from Wall Street, Moya said, predicting an almost immediate drop of 3% to 5%.
"After the initial shock settles in, cyclicals will start to outperform as expectations will grow for the quick passing of massive infrastructure spending," Moya said.
Economists at Goldman Sachs estimated that Biden's tax plan, if enacted in its current form, could reduce earnings per share of S&P 500 companies by 12%, to $150 from $170, in 2021. But with so many unknowns, particularly the future spread of the coronavirus, the results of November's election are not so clear-cut for equities, even if a Biden administration undoes all of Trump's corporate tax reforms.
"Both the election outcome and the path of policy post-election are extremely uncertain today," Cole Hunter, vice president, U.S. portfolio strategy with Goldman Sachs, wrote in an Aug. 24 note. "Importantly, the potential for changing US-China trade policy and large fiscal expansion could also dampen the effect of a potential corporate tax hike."
John Davi, founder and chief investment officer of Astoria Portfolio Advisors, said he expects stocks to steadily grind higher throughout most of 2021 if Biden wins, predicting that a new Democratic administration would put higher taxes and stricter regulation on hold during the economic rebound.
But if the economy improves more quickly than expected, a Biden presidency could push for higher taxes and more regulation, likely causing a decline in stocks in the latter part of next year, Davi said.