The Problem With Taking Credit for a Soaring Stock Market

The gains President Trump is touting have been almost a decade in the making.

Jonathan Ernst / Reuters

Presidents normally decline to take credit for gains in the stock market. The Dow Jones and the Standard & Poor’s 500 are simple reflections of market sentiment and short-term profits, after all. And what goes up has a way of inevitably going sideways or crashing down.

That has not stopped Donald Trump and his administration from celebrating the Dow hitting 22,000 for the first time this week. A little less than a year ago, Trump described the soaring stock market as a “big, fat, ugly bubble.” Now, he argues it is a reflection of corporate executives’ belief that things are looking up, thanks in no small part to him.

Might he be right? Trump has promised a big infrastructure bill and tax cuts. His effort to trim away regulations looks likely to boost corporate profits, particularly in the financial and energy sectors. Moreover, he has stocked his administration with market-sensitive Goldman Sachs alumni, including Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn. And he has not yet carried through with his promises to start a trade war, a possibility that businesses have lobbied strongly against.

Plus, after his victory, there was a surge in stocks, Treasury yields, and the value of the dollar—the so-called “Trump bump,” driven by Wall Street’s belief that Washington’s gridlock would end and tax cuts and spending bills would arrive. “Markets seized on Trump’s growth-focused message,” argued Charles Himmelberg, a Goldman strategist, shortly after the election. He said it was “visible in the speed with which the market’s narrative on the economic outlook under Trump has shifted from ‘uncertainty’ to ‘growth.’”

But that surge has cooled, given that it looks likely that even with a Republican-controlled Congress, little will get done in Washington. And at this point, the weight of evidence is that the current rally does not have much to do with Trump at all. For one, though it accelerated as he entered the White House, it started years before. Indeed, the boom arguably took hold when the recovery started in 2009, with stocks climbing relentlessly since then, aside from a few cooling-off periods due to turbulence over the debt ceiling, China’s economic slowdown, the Federal Reserve raising interest rates, and falling gas prices.

In both the Obama and Trump eras, growing corporate profits have been the central driver of rising markets—with neither president primarily responsible. Right now, profits as a share of overall economic output are close to record levels, with loose monetary policy and steady growth helping American companies thrive. Earnings overseas—which have less to do with any policies in the United States—are helping corporate bottom lines, too: The best-performing stocks this year, as Justin Lahart noted in The Wall Street Journal, are those of companies making most of their money abroad, including Boeing, Apple, and McDonald’s. Plus, the latest bump up in the stock market does not come from policy changes in Washington, but from the West Coast, with Apple posting better-than-expected quarterly earnings.

Whatever or whoever is responsible for the market’s new highs, the gains hardly matter for most Americans. Only half of families own any equities at all, and most middle-class families have their net worth tied up in their homes, not in the markets. Edward Wolff, an economist at New York University, has calculated that the top 1 percent of households by wealth own about a third of all shares, with the top 10 percent owning 92 percent. Plus, all those corporate profits are not translating into bigger paychecks for American workers, with wage growth still sluggish despite the unemployment rate falling to a 16-year low. It is job, income, and wage growth that seems to best predict electoral outcomes. When the time comes, those might be better numbers for Trump to tweet about.

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