Stock markets wrapped up 2019 on a high note and brought that energy into the beginning of 2020. If it wasn’t for the concerns stemming from the coronavirus, it’s likely that markets would still be moving upward, and it shouldn’t be too long until that is the case again. 2019 saw markets rally, but why? Was it the completion of phase one of the trade deal, is it the U.S. consumer feeling particularly emboldened, or might it be the Trump effect?
According to Nobel-prize winning economist Robert Shiller, U.S. President Donald Trump is the main reason for the rally: “I put Trump as the primary cause of the recent strength in the market,” he told CNBC’s Trading Nation back in December. “He’s a motivational speaker. We’ve never had a motivational speaker president before. He knows how to create animal spirits.”
He continued, “It may not be so logical. It may be more, as I said, of animal spirits. This is an emotion that you feel at a certain time that you sense you see in other people. So when you see other people feeling confident about the market, you feel more confident yourself.”
There is no doubting the way the market has trended since Trump took office. While the current President certainly inherited an economy moving in the right direction, it has only blossomed under his tutelage. Last year, the Dow Jones rose by over 23 percent, while the S&P 500 gained 29 percent. And since Trump took office, the Dow Jones is up 45 percent, while the S&P 500 is up 50 percent.
While the rest of the globe suffered from a slowdown, the U.S. GDP growth rate stayed around two percent. China’s GDP, meanwhile, slumped to its lowest in decades. So it appears the trade war has been working, at least in some regards. Furthermore, unemployment has fallen to a 50-year low.
It isn’t all rainbows and butterflies, however. According to a study by the Fed, Trump’s trade war has actually caused job losses amongst US manufacturing workers. As it turns out, the increased cost of sourcing particular goods and the effects of retaliatory tariffs have actually caused job losses in the sector.
So How Does This All Affect 2020?
With upcoming national elections, 2020 was always likely to be volatile. Thrown in coronavirus, the fallout from the finalization of Brexit, and a tepid world economy, the 2020 market might be the most temperamental we’ve seen in some time.
Trump’s pro-business stance has certainly played a role emboldening the markets. A single tweet has been proven to reverse the course of the market. Furthermore, if Trump manages to stay in office, it will bring some amount of continuity to the market and on-going negotiations with China.
How Does This Affect Advisors?
The uncertain global climate and steady growth stateside will continue to make the U.S. attractive for businesses. Attractive corporate tax rates continue to be a compelling reason for companies to stay here and manufacture domestically.
Therefore, the U.S. should remain attractive to investors. Trump’s ability to encourage investment and his willingness to intervene in fiscal policy, ability to change market momentum, and continued pro business stance via corporate tax reform, will continue to make the U.S. economy strong through 2020.
