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Why The Market Has Surged Under Trump

Some people aren’t going to like this, but the market seems to love President Trump.

Since election day last year through last Friday, the SPDR S&P 500 exchange-traded fund, which tracks the S&P 500, is up more than 17%, not including dividends. By most standard measures, that’s a phenomenal return. It is also multiple times the gains shown in the same period a year earlier.

The overarching thing about the market is that it is amoral. It cares about little except future profits, dividends, and cash flows. Other stuff, not so much. When it comes to the money matters, there are specific reasons that investors feel more confident about stocks now. Here are some:

U.S. President Donald Trump. Photo by Mark Wilson/Getty Images

    1. No new legislation. One oft-cited criticism of President Trump is that he hasn’t managed to push, shepherd, or cajole, any new laws through Congress. Investors love that. When I first worked on Wall Street, both fresh off the airplane and an investing neophyte, I expressed my concern that some proposed law might not get passed. I was told that such an outcome would be perfect because investors thrived on such gridlock. The general feeling was that new legislation could auger in worse things for public companies than no new laws at all.
    2. Rollback on regulations. While Trump hasn’t made much headway with repealing Obama’s signature healthcare law, or with tax reform, he has done well on limiting new regulations. The American Action Forum think tank suggested his “lack” of new regulatory action was “historic.” He’s also been killing old regulations. You can read about it here. In general, more regulations cost companies more money and so eat into profits. Trump’s rollback is helping ease the cost burden and so will likely help give earnings a lift.
  1. Less uncertainty than other countries. Many people in the U.S. complain about Mr. Trump’s routine self-contradictions. They say he is causing uncertainty and that can’t be good for the economy. Maybe not. The level of uncertainty as measured by the economic policy uncertainty index hasn’t been too much of a problem for the U.S. compared with that of other major economies such as the European Union and China. Using the same consistent measure across borders, the U.S. looked positively stable in comparison. America was the least dirty shirt in the basket to paraphrase a much-used term. I wrote about the matter here, back in February. Investors tend to flock to the best available opportunities, rather than look for absolute levels of certainty.
  2. Pro-business bias. It should be clear that Mr. Trump is a pro-business leader. Investors like that because even if nothing legislative gets done, they have a feeling that the president has their back and that of the business community. That, I’ve-got-your-back message helps embolden the animal spirits of business including investors.
  3. Weaker dollar. Close to half of revenues (43.2% according to S&P Dow Jones Indices) for the companies in the S&P 500 come from foreign countries. So the approximately 7% drop in the value of the dollar this year (according to data on the dollar index from the St. Louis Federal Reserve) means that the foreign earnings of U.S. companies will get a boost when recorded in dollars. Higher earnings tend to result in higher stock prices.
  4. The global economy firing on all cylinders. When all major economies are growing, then it is easier for all companies to grow profits. The International Monetary Fund sums up the increasing growth in its recent report: