Trump-era Stock Markets in Context

O

Oneuli

Verified User
2018 has been a miserable year for stocks. But 2017 was great. So, how does Trump's time in office, as a whole, look for stock investors, relative to other presidential eras?

Based on adjusted S&P 500 closes, the annualized market growth since Trump took office is 9.69%. To put that in perspective, the rate of growth on Obama's watch was about 43% higher, and the rate of growth on Clinton's watch was about 57% higher. However, by the much more modest standards of Republican-led eras, it's respectable. In fact, compared to GW Bush, Nixon, and Hoover, Trump's record for investors actually looks good.
 
Do you have a link where you got this information that shows the performance of all Presidents?
 
Oneuli said:
2018 has been a miserable year for stocks. But 2017 was great. So, how does Trump's time in office, as a whole, look for stock investors, relative to other presidential eras?

Based on adjusted S&P 500 closes, the annualized market growth since Trump took office is 9.69%. To put that in perspective, the rate of growth on Obama's watch was about 43% higher, and the rate of growth on Clinton's watch was about 57% higher. However, by the much more modest standards of Republican-led eras, it's respectable. In fact, compared to GW Bush, Nixon, and Hoover, Trump's record for investors actually looks good.
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DJIA is 5500 higher than when the black President left office.
 
CFM said:
DJIA is 5500 higher than when the black President left office.
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First, the Dow's not a good index to use for such calculations. It's just the sum of its component stock prices, so the index doesn't necessarily rise and fall proportionate to the total value of the underlying companies (e.g., a 5% rise in a higher-priced stock will move the index more than a 5% rise in a lower-priced stock, even if the later represents a company with a larger market cap). The S&P 500 uses a proper indexing system, so it's a better one to use for comparisons like this.

Second, over most periods, we expect stock market indexes to rise. If nothing else, inflation will mean that a fixed real value of a company will mean a rising nominal value for its stock over time, other things being equal. The relevant analysis for an investor isn't whether the stock index has risen, but rather what the annualized rate of increase in real stock values is.

During the Obama years, stock investors got rich. Not only was the nominal rate of stock value growth near record highs for an eight-year period, but nearly all of that nominal increase was a real increase, because inflation was near record lows. So, not only were portfolios growing 43% faster on his watch than Trump's, but the real value of those portfolio's was outpacing what we've seen during the Trump era by a significantly greater margin than that.
 
Oneuli said:
First, the Dow's not a good index to use for such calculations. It's just the sum of its component stock prices, so the index doesn't necessarily rise and fall proportionate to the total value of the underlying companies (e.g., a 5% rise in a higher-priced stock will move the index more than a 5% rise in a lower-priced stock, even if the later represents a company with a larger market cap). The S&P 500 uses a proper indexing system, so it's a better one to use for comparisons like this.

Second, over most periods, we expect stock market indexes to rise. If nothing else, inflation will mean that a fixed real value of a company will mean a rising nominal value for its stock over time, other things being equal. The relevant analysis for an investor isn't whether the stock index has risen, but rather what the annualized rate of increase in real stock values is.

During the Obama years, stock investors got rich. Not only was the nominal rate of stock value growth near record highs for an eight-year period, but nearly all of that nominal increase was a real increase, because inflation was near record lows. So, not only were portfolios growing 43% faster on his watch than Trump's, but the real value of those portfolio's was outpacing what we've seen during the Trump era by a significantly greater margin than that.
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So now it's not a good index when the white MAN has it higher than when the black BOY left office?
 
CFM said:
So now it's not a good index
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Correct. This idea that the DOW is a lousy index to use for such comparisons isn't a new one. Among serious investors, economists, and the financial press, it's been commonly understood for decades. If it helps you extract the issue from your political biases (and your racism), look to older explanations for why the DOW's indexing system sucks:

https://www.kiplinger.com/article/investing/T038-C000-S002-why-the-dow-is-a-dumb-index.html
http://www.crossingwallstreet.com/archives/2008/06

Or just think through the implications of a price-weighted index.

Here, I'll simplify. Picture a simple index consisting of just two companies. One company is worth $1 million and has issued 1 million shares (price $1). The other company is worth $1000 and has issued ten shares (price $100). The resulting index is set at 101 (the combined price of the two stocks, using the DOW's indexing method).

So, what happens if the first company's stock rises to $2 and the second company's stock falls to $99? Well, according to the index, nothing meaningful happened. The index is unchanged at 101.

But what happened to you, as an investor, if you owned $100 of each company? Well, your $100 of the first company is now worth $200. And your $100 of the second company is now worth $99. So, you went from having $200 of value to having $299 of value. The index didn't even twitch, and your investment is worth almost 50% more than it was. Obviously, as an investor, the index is utter shit when trying to track the value of your investments.
 
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