The Resiliency of Markets In the Trump Era

Despite some policy backlash, along with projections from respected economists and analysts that markets would dive if Donald Trump were elected president, that’s not been the case…in the least. To the contrary, things appear to have been going very well. Amongst the reasons: generally positive economic indicators over the last few months; hopes for extensive deregulation, infrastructure spending and tax reform, and; an overall sense of optimism over change. Interestingly, market participants and others in the business media—at least tentatively—have altered their way of thinking with regard to specifically how presidents (and presidents-elect) can impact markets. As Julia Roberts (playing Tess) says to Andy Garcia (Terry Benedict) in the movie Ocean’s Eleven: “You of all people should know Terry, in your hotel, there's always someone watching.”

The same goes for presidents. They, or in former administrations the financial regulators themselves, act or issue policy statements and it can move an individual stock or commodity—and potentially even an entire market. While the President’s highly targeted tweets have significantly impacted trading on individual company stocks, creating sporadic winners and losers, overall markets have remained, give or take some modest volatility, on an upward trend. Many of his statements and tweets have been dismissed. Markets can be skittish, but they are adaptive and resilient: already they appear to be exercising discernment and self-restraint even in the wake of some of the President’s prolific and disquieting statements and tweets.

For the economy, President Trump starts in a decent place. Prior to his 1984 presidential election victory, then-candidate Ronald Reagan asked: “Are you better off than you were four years ago?” The answer, had Secretary Hillary Clinton forcefully asked it during the campaign last year, would have been a certain “yes” for most, but surely not all of the country. After 13 months of layoffs beginning in December 2007, the Obama Administration inherited a high unemployment rate that peaked at 10 percent in October 2009—the proverbial clean-up crew behind the parade elephants. While much remains to be done, the rate currently stands at 4.7 percent. The Gross Domestic Product (GDP) was at negative 2.8 percent when Mr. Obama took office, and now stands—given the Q4 growth rate of 1.9 percent released on Friday—at 1.6 percent for 2016. That’s not excellent news, but still positive.

For markets, in 2009 with the Great Recession in full swing and the housing bubble just having been busted, the Dow Jones Industrial Average (DJIA) tanked tumultuously to a low of 7,924 in early March, but has since risen, climbing above 20,000 for the first time ever on January 25th. Stocks in the U.S. increased an average of 12 percent annually during Obama's eight years in office. For financial and commodity futures the circumstance was similar. At the world’s futures leader, CME Group (NYSE:CME), the average daily volume (ADV) was 9.2 million contracts traded. Last year, the ADV was 15.6 million (up 12 percent from 2015). In fact, five of CME Group’s top 10 daily volume days ever occurred in 2016.

All of that said, for the markets and the economy, we know President Trump would like to “make it great again.” He has promised 4 percent GDP growth, which would be most excellent. Let the Force, providence and prudence be with him.

While market watchers have disregarded some of the more ancillary Trump comments and tweets (in recent days about inaugural crowd sizes and voter fraud), there may become a tipping point where people become concerned that the positive policies and programs the President has laid out will be unachievable due to what many view as capricious behavior. For example, a recent NBC-WSJ poll confirmed that top priorities for Americans are in line with what the President has suggested with regard to keeping U.S. jobs from going overseas (78 percent) and funding infrastructure (64 percent). Both of these objectives, by themselves, could strengthen bipartisan support in Congress and for the President, from the American people. Those things will be difficult to achieve, however, if those on Capitol Hill become concerned that some of the more extreme and tangential presidential pronouncements will somehow taint them with a shade of shakiness. Therefore, the President may be well-advised to focus on the ocean of tasks to be navigated and avoid distracting debates about the passing scenery, or crowd size. Set a course through the well-established campaign and policy commitments, focus on the horizon and steer the ship of state through wavy waters.

Tax reform is a key policy goal of President Trump. It will require a significant expenditure of political capital, as well as the support of both Wall Street and Main Street. Despite many fits, starts and failed efforts over the decades, tax reform is hard to achieve. There’s not been a major tax reform since 1986. Prior to that, then Senate Finance Committee Chair Max Baucus declared, “The last time this committee met to review the tax code from top to bottom, Eisenhower was president, Joe DiMaggio was married to Marilyn Monroe and there were no major-league baseball." While only 34 percent of respondents in the poll noted above believe reducing business taxes should be a priority, there's no question that doing so would add a further boost to markets and our economy.

Stay away from the smoke and mirrors. The President has repeatedly said that Mexico will pay for his great wall between the U.S. and Mexico. He even signed an Executive Order to begin immediately. However, the reality is that he can’t build it without funding from Congress. That’s a simple fact. Might there be some walking around money or change in the various federal department couches? Perhaps, but nothing significant will occur without Congressional purse strings. Reliance on fake financing is no more sustainable than fake news. It will only serve to fuel criticism, undermine confidence, erode his credibility and ultimately weaken the very markets that will serve to keep "America first". Markets have been resilient and the economy is in good shape.

The President can make things even better if he focusses, and he should be afforded every reasonable benefit of the doubt and chance to succeed with his vision for a strong domestic economy. It’s important for our nation that he does so. Despite his many executive skills and business acumen, like most new presidents he is confronted with a steep learning curve. I remain hopeful that he can be a disruptive and definitive Dealmaker in Chief who changes things for the better.

Former US Trading Commissioner Bart Chilton is a political and policy commentator and the author of Ponzimonium: How Scam Artists Are Ripping Off America. He can be reached at bartchilton@bartchilton.com.