Economics

Why Are Markets Rejoicing at Trump's Win?

The incoming president may not be good for the economy in the long run.

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On the evening of November 8, 2016, as it became clear that assumptions about Hillary Clinton's certain electoral victory were wrong, investors began to squirm. Dow futures dropped by more than 700 points that night, and the liberal economist Paul Krugman wrote at The New York Times that "if the question is when markets will recover, a first-pass answer is never."

The next morning, however, the stock market completed a stunning reversal to end at a record high. What some have called a "Trump rally" has continued ever since, with the Dow Jones Industrial Average hovering just above the 20,000 mark at press time.

One explanation for Wall Street's seeming euphoria is that investors believe they're now less likely to see the continuation of tax hikes and micro-regulation desired by the Clinton campaign.

True, it's impossible to know what Donald Trump's win heralds on the policy front in the long term. But at least for now, the market appears to be betting that the new president will make good on campaign promises that businesses expect to be good for their bottom lines. The Republican sweep could pave the way, for instance, for a long overdue reform of the individual and corporate tax codes.

Right now, explains Cato Institute researcher Chris Edwards, corporations keep just $65 of every $100 in profits they earn, after taxes are taken out. "Trump is saying they will get to keep $85," he says. "If the profit stream increases by 30 percent ($85 vs. $65), so should the market value." After all, "in theory, stock valuations are the present value of future after-tax net profits to companies. So when you cut the tax rate on profits a lot, the [present value] of the net profits—the net cash—to the shareholders rises a lot."

The S&P Financials Index returned 16.75 percent from Election Day through year end, compared to 5.98 percent for the S&P as a whole. This suggests markets are bullish about the possibility that Trump will loosen Wall Street–specific regulations such as those in Dodd-Frank. Multinational companies may also have concluded they'll be allowed to repatriate some of their foreign cash holdings to the U.S. at a lower cost than they could have under Clinton.

None of which means the markets are right. Andrew Hofer, the head of Taxable Fixed Income at Brown Brothers Harriman & Co., thinks markets may be overcorrecting for a bout of pessimism that started in late 2015. "Now that we seem to have passed through that period without the sky falling, sentiment may be overshooting in the other direction," he says. "Trump's election has been the convenient foil on which the market can project its optimism. Market multiples have increased rapidly on the same slow positive change in fundamentals, but with little attention to the greater uncertainty this administration brings around global trade, interest rates, inflation, geopolitical risk, and institutional continuity."

In other words, there's plenty to be nervous about, too. "The market seems to be pricing in a lot of positive news, and we don't have a great deal of evidence to base that on," said Steve Major, the global head of fixed-income research at HSBC Holdings PLC, in a recent interview with The Wall Street Journal. While consumer confidence is at its highest level since 2007, the Federal Reserve's latest survey of current economic conditions—a document known as the Beige Book—offers little evidence that the election has had an impact on the actual economy.

Not surprisingly, many market observers don't expect the excitement to last. With nearly $20 trillion in national debt on the books, entitlement and pension crises on the horizon, and no plan to address any of that, it's difficult to see how Trump's tax cuts, if they materialize at all, can be sustained in the long run. And then there are the market risks that would come if Trump wages a trade war with China and Mexico.

Considering Republicans' terrible track record when it comes to fighting for concrete pro-market policies, I'd say protectionism, cronyism, higher spending, an ill-thought-out Obamacare repeal, and/or a scandal involving Trump's business empire seem far more likely than 5 percent economic growth and booming markets. Enjoy the high while it lasts.

NEXT: Think the Sharing Economy Needs More Regulation? SXSW Panel of Women with Prison Records Shows the Down Side.

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  1. “The first monthly jobs report under President Trump Friday showed a strong economic performance, with employers adding 235,000 jobs in February and the unemployment rate falling slightly to 4.7 percent.
    The Labor Department said wages also grew 2.8 percent from February 2016.
    Employers added 227,000 jobs in January.”
    http://www.washingtontimes.com…..rst-month/

    But don’t get excited. It’s fake news ’cause Trump is a big poopyhead.

    1. So any job gain in the first full month of a new president’s administration is the product of the new president? That’s a pretty bizarre notion, given (1) the influence of long-term (or at least longer than one month!) forces on the job market, and (2) the fact that in this case, the president has had no chance to get any of his planned policies enacted into law, and indeed we don’t really know how successful he will be (e.g., on Obamacare) or even what kind of legislation he *wants* to pass (border adjustment tax or no?).

      FWIW, the economy gained at least as many jobs in February 2015 and February 2016 as it did in February 2017.

      1. “So any job gain in the first full month of a new president’s administration is the product of the new president?”

        I certainly can’t say that’s true, but I’m calling bullshit on your claim that he has to do something before the market reacts.
        The market discounts the future; I hire now because I think there is going to be increased demand for my product. You snooze, you lose.
        And let’s see the cite for the other years, wages too, please.

        1. Feb. 2015: “Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today.”
          http://tinyurl.com/zomd7gb

          Feb. 2016: “Employers add better-than-expected 242,000 jobs in February”
          http://tinyurl.com/zu3h6zh

          Yes, wages are going up–that is only to be expected as the economy nears full employment. And it has gradually been nearing that point for some time now. Back from Nov. 21, 2016 Time reported “It’s a job seeker’s market.
          Openings hit an all-time high in 2016, according to the Bureau of Labor Statistics?and the 2017 outlook is particularly rosy for mid- to senior-level workers.” I doubt that the record as of November 21 was due solely to the two weeks following the election…

          Yes, when businesses hire, they are anticipating that there will be a market for their goods or services. But there are two things that do not necessarily follow from that: (1) that businesses think that will come about *as a result of the Trump administration*, and (2) that their anticipations are necessarily correct in any event (read my post about the “Hoover Bull Market” of the first eight months of 1929).

          1. The cite for the *Time* article is http://tinyurl.com/j4cac95

          2. OK, I see the cites for the increased employment. Thank you.

            “Yes, when businesses hire, they are anticipating that there will be a market for their goods or services. But there are two things that do not necessarily follow from that: (1) that businesses think that will come about *as a result of the Trump administration*,”
            You’re welcome to qualify that any way you please, but at the very least, the market in general finds Trump conductive to further growth.

            “(2) that their anticipations are necessarily correct in any event (read my post about the “Hoover Bull Market” of the first eight months of 1929).”
            Where is that post?

            1. “(2) that their anticipations are necessarily correct in any event (read my post about the “Hoover Bull Market” of the first eight months of 1929).”
              Where is that post?

              OK, I found it below. It’s nothing other than newspaper clips.
              Did you have a point, or are you just tossing crap around?

              1. Yes, I have a point. Markets in early 1929 evidently believed that President Hoover would be great for jobs and the economy. They were wrong. There is no reason they can’t be wrong now.

      2. It’s more than 100K over the forecast, so yes, it’s being attributed to Trump. I don’t know why this is so shocking. Just like with the rise in the stock market, it’s not about the effect of new policies, it’s about expectations.

        1. I can’t believe this has to be explained – the discount and expectations part of the equation.

        2. “…it’s not about the effect of new policies, it’s about expectations.” Like with Obama getting the Nobel Peace Prize.

          1. Not exactly. Like all awards, the Peace Prize is supposed to be awarded for accomplishments, not expectations.

            I guess your point is that predictions can be wrong? Which is true, but kinda obvious.

          2. Eric L|3.12.17 @ 12:16PM|#
            “…it’s not about the effect of new policies, it’s about expectations.” Like with Obama getting the Nobel Peace Prize.”

            Bullshit. If you need explanation, you’re not bright enough to understand.

      3. Careful, David — Servo is “calling bullshit” on you. Not that he and the other “libertarians” here are not Trumpists in Trumpist clothing. Just a coincidence. They are defending truth and honor and it has nothing at all to do with Republican partisanship.

        1. I guess we just won’t believe our lyin’ eyes, then?

        2. DanO.|3.12.17 @ 1:14PM|#
          “Careful, David — Servo is “calling bullshit” on you. Not that he and the other “libertarians” here are not Trumpists in Trumpist clothing.”

          Yeah, you stupid shit, noting the market is rising = “defending Trump”.
          There is dumb, stupid, abysmally ignorant and then three’s DanO.
          Fuck off.

          1. I’m a little offended that you didn’t include “shit stain” and “turd” in your petulant rebuttal.

            Anyway, when the “markets” crash this year or next, will that be a condemnation of Trump’s fiscal policies? Or will you find someone else to blame? Someone…proggie…

            1. if the markets crash, then someone here will blame Trump. Why are you battling so hard to claim the current uptick has nothing to do with him?

            2. DanO.|3.12.17 @ 4:04PM|#
              “I’m a little offended that you didn’t include “shit stain” and “turd” in your petulant rebuttal.”
              I’m offended by your existence. Fuck off.

              “Anyway, when the “markets” crash this year or next, will that be a condemnation of Trump’s fiscal policies? Or will you find someone else to blame? Someone…proggie…”
              Put your money where your mouth is, shitstain. You can short any time you please. But please tell us what you shorted and when.
              Other than that, you’re just one more whiny loser.

      4. DavidS-T|3.12.17 @ 11:10AM|#
        “FWIW, the economy gained at least as many jobs in February 2015 and February 2016 as it did in February 2017.”

        Still waiting for the cites, including wages.

        1. Not that you are defending Trump.

          1. “Not that you are defending Trump.”

            You should learn to read, idiot.

          2. Here is a chart of job gains:

            http://www.investors.com/polit…..ou-to-see/

            I am not smart enough to comment, but I think the chart and data are not very complimentary of the ONE.

          3. DanO, did you read this part?

            “What’s more, that 14.4 million increase in jobs is measured against when the job market hit rock bottom in February 2010. If you compare the current number of jobs to the previous jobs peak in January 2008 — which is how job growth is normally measured — the number of private-sector jobs has increased just 5.6 million.

            During that time, the population grew by more than 20 million. In other words, there’s a jobs gap of more than 14 million.”

    2. The numbers are in line with February of 2011, 2012, 2013, and 2015. Why does Trump deserve our praises when these numbers are not unprecedented?

  2. Trump loves being unpredictable. “Unpredictable” is the exact opposite of what businesses want when they’re making long-term investments. Day traders, on the other hand, looooove unpredictability and volatility. It’s like Las Vegas up in here!

    1. Businesses don’t live and die by the latest Presidential tweet. They care about tax policy, regulations, that sort of thing. And they think Trump will be much better on those things than Obama was, or Hillary would be.

      1. Plus

        After all, “in theory, stock valuations are the present value of future after-tax net profits to companies. So when you cut the tax rate on profits a lot, the [present value] of the net profits?the net cash?to the shareholders rises a lot.”

        A lower tax burden allows companies to lower prices to be more competitive rather than just automatically gain more profit. Some companies might keep prices the same after their tax rate goes down and some companies might try and gain market share by lower prices.

  3. And yet all those conditions existed under whatsisname and the markets still did well. And it had NOTHING to with Obama possessing a sophisticated understanding of investments, finance and business. In fact, we KNOW it’s the opposite just based on his sophomoric quips over eight years.

    The bottom line is what’s driving the markets are: 1) buy-backs of outstanding shares and 2) low interest rates.

    1. And the really bad news is that the next time the bubble bursts, the Fed has no new tools left in the magic bag of tricks to resort to.

    2. A lot of the reason for stock performance over the last few years has been the Fed buying in to keep things afloat.

  4. Chicago Tribune, March 2, 1929: “Hoover Bull Market Sends Stocks Soaring” http://archives.chicagotribune…..ks-soaring

    1. Heh.

      Tom Pettey.

    2. Maybe they should have been paying more attention to the actual economy and not the financial sector.

  5. I see what you mean? Jesse `s postlng is neat? on monday I bought a top of the range Jaguar E-type after I been earnin $7477 this-last/4 weeks and-even more than, 10-k last-munth . no-doubt about it, this really is the most comfortable job Ive had . I started this seven months/ago and right away was making more than $73 per-hr . go right here

    ,,,,,,,,,,,,,,,,,,,,,,,,,,, http://www.moneytime10.com

    1. DanO, is that you?

  6. many market observers don’t expect the excitement to last.

    This much excitement can’t last, of course. But things can still be pretty interesting.

    With nearly $20 trillion in national debt on the books, entitlement and pension crises on the horizon, and no plan to address any of that, it’s difficult to see how Trump’s tax cuts, if they materialize at all, can be sustained in the long run.

    It’s always been hard to see how anything can be sustained in the long run. That’s not news. Yet the run so far has been far. Let’s study what’s sustained it up to this point, & figure out how to continue. If the tree needs pruning, it’ll get pruned eventually, because nobody’s going to let it just keel over.

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  8. Can anyone think of a generally better, or more broadly convincing, predictor of biz than markets are? We’re all handicapping it, & the result is the pari-mutuel pool you see.

    1. How about consumer spending and savings? You know, *real* things. What actual people actually buy.

      1. It’s not what they are buying now, it’s what it is anticipated they will buy.

      2. “…You know, *real* things. What actual people actually buy”

        You mean like, equities? The things they ARE buying to such an extent that the prices for them are rising?
        That sort of *real* thing?

  9. I find funny how so many emcees at WFMU & commenters at wfmu.org are anti-Trump, yet their major annual fundraiser (about midway right now) is doing better than it has in years, even with the loss of their biggest $ bringer, who has now gone commercial as http://nachumsegal.com . People can afford a lot more now, it seems.

    Meanwhile the WNTI (Centenary College) staff who were gotten rid of after the station was sold to U.Penn. have re-formed as http://newtradio.org

  10. Isn’t is fairly obvious? They aren’t celebrating Trump’s win. They are celebrating Shrillary’s loss.

    1. That is some mighty partying, because when it crashes it’ll be because of Shrillary that it does. After all they would have over-celebrated her loss.

      1. and the liberal economist Paul Krugman wrote at The New York Times that “if the question is when markets will recover, a first-pass answer is never.”

        “English, motherfucker! Do you speak it?”

        How many leftist assholes lost their shirt that day? Are you a “shriek jr.” who thought that gold was going to drop to $600/oz 7 yrs ago?

        1. Subscribe to MarketMinder.com and/or read books by Ken Fisher.

          Gold, like all commodities, is a cyclical investment, driven by over-supply and under-supply, which are driven by market prices … which are driven by over- and under-supply in the market.

      2. Damned|3.12.17 @ 5:54PM|#
        “That is some mighty partying, because when it crashes it’ll be because of Shrillary that it does.”

        Doncha’ just love people who make claims about ‘when the market crashes’ without a single suggestion regarding what and when that might be?
        Idiots like Damned are making the claim with no definition of what a “crash” is, nor the barest hint of when that might be and such lefty twits expect to be taken seriously?
        Hey, Damned! Put your money where your keyboard is; what equities are you shorting on what date?
        Or, fuck off as a whiny loser who doesn’t know what he’s posting about.

  11. You know what you can always count on when the market reaches new highs? A slew of articles telling us that the market is overvalued and predicting a correction.

    You know what else you can always count on? The press to do a full court press on how bad the economy is every time a republican takes office. (see what I did there?)

    When Bush I was in office they told us the economy was tanking the entire time he was in office. 5% unemployment rates were greeted with panic as the second coming of the great depression. Or a sure sign that employment was too high and the scourge of stagflation was just around the corner. A couple of years later, 6.5% unemployment was “full employment” under Clinton. Then when Bush II came along, suddenly the economy was a disaster again. 4.5% unemployment was the death of everything and a sure sign of the coming recession (that materialized 7 years later).

    I don’t think any economist in the history of ever has been able to predict anything with greater accuracy than a chimp throwing darts, but you can predict these two things with a certainty approaching 100%.

    1. There have, I believe, been eoconomists a great deal more accurate than a chimp throwing darts, especially when the chimp buys into Progressive economic theory and the dart board was likewise made by Progressives.

  12. I think if you’re ultra wealthy, Trump is not without certain appeal, given his millionaire status and penchant for “making deals”. There are a number of WS people in his cabinet.

    At least one insurance company came out in favor of parts of the Trumpcare. The 1% are hardcore liberal, but everyone sort of becomes “libertarian” when it comes to their own money.

    1. Yea i think everyone is libertarian towards themselves….to others not so much

    2. Also, while Shrillary clearly was for,sale to the highest bidder, I know nothing about her character that suggests she would STAY bought.

  13. The markets are celebrating hillarys loss. Progressivism is great if you are a connected crony…for all industries not so much

  14. The ironic thing about progressivism is their ideology ends up as an oligarchy in practice which they claim to hate. Funny they cant understand this when the definition is rule by experts

    1. Oh, they understand it all right. They hope that nobody else does. Like all other historical self-selected elites, they fervently believe that they were put upon earth by Providence to tell the rest of us what to do. To that end, they will tell any lie they can come up with that might convince the Unwashed to allow them to take over.

      They are, ultimately, no worse than the Old World Aristocracy or the Southern Planters. But they are no better, either.

  15. Markets are probably happy because energy is cheap, Obama administration regulatory power grabs are being pared back, the government spending spree continues, and between the impotent Democrats and impotent Republicans in congress, big legislative programs are unlikely to go anywhere.

  16. Irrational exuberance is back big time!

    When the markets crash, who shall reason.com blame other than Obama?

    1. No doubt!

      We will just all agree to forget about “Turbo-Tax” Timmy Geithner and “Helicopter money” Ben Bernanke… Who were the biggest donors to Chris Dodd and Barney Frank when they were in Congress and which party still supports that law? Who did Goldman-Sachs give more money to– Hillary or Trump?

      When “Reagan tripled the debt”- who controlled the House? (You know, the institution that actually passes all revenue and spending bills- and is a co-equal partner in all legislation?)

      When “Clinton almost balanced the budget”- who controlled the House?

      When “Bush crashed the economy”- who controlled the House?

      When the “deficit finally declined under Obama”, who controlled the House?

      Please educate yourself…

    2. Damned|3.12.17 @ 5:51PM|#
      “Irrational exuberance is back big time!”

      Lefty losers can short any time they please.
      But if you expect any cred at all, you’d better tell us what you shorted at what time-span.
      Other than that, you’re just one more whiny loser posting bullshit.

  17. You’ve a society where vast numbers of politicians, educators, unfair and unbalanced newsmen lean left and far left and even into a Socialist/Fascist society. Had a president vowing to ‘fundamentally transform’ the country. Get a new President who is a rich, rich,rich Capitalist (whatever his short comings). And expect the market not to go up? Why?

    1. jbsnc|3.12.17 @ 7:55PM|#
      “…And expect the market not to go up? Why?

      Ask Krugmann, not me.

      1. If I wanted shit out of Krugmann (and he’s produced nothing els for years), I’d squeeze his head like a pimple.

  18. Why Are Markets Rejoicing at Trump’s Win?

    Don’t they know he’s the Devil and we’re all dooooooomed?

  19. Considering Republicans’ terrible track record when it comes to fighting for concrete pro-market policies

    Slogans and soundbites … all to coverup an equally terrible track record by her own Mercatus, plus Cato and Reason.

    Libertarian elites have NOTHING on ANY major issue to voters — jobs and the economy, taxes, entitlements, healthcare. Nothing.

    Cato’s “proposals” for Social Security and Medicare are so stupid that only a tribal puppet could not see the bullshit at 100 yards. Veronique says that the PROMISE of major cuts in corporate taxes and regulation is meaningless, compared with ?.. CRONYISM!!!!

    At Reason, Mercatus and Gillespie conspire to claim that massive spending cuts after WWII were “stimulus” for … a postwar boom that never happened, supported by bullshit data.

    Deep in a tribal cave, they don’t know Paul Krugman says the postwar boom was despite 91% tax rates! See the OBVIOUS?
    NO?????????

    Spending cuts and tax rates are both real. NOW do you see it?
    Libertarians claim a massive boom with 91% tax rates.
    Progressives claim a boom, after 50% spending cuts. (ROFLMAO)

    If you missed THAT, then you’ll swallow ANYTHING from your own tribe, just like progs. Try again. I see why “scholars” both left and right would invent a boom (actually 5 recessions in only 15 years)

    But how can BOTH scholars be so totally stupid about each other?
    Tribalism. Now check the definition of “scholar.” (lol)

    1. Libertarian elites have NOTHING on ANY major issue to voters — jobs and the economy, taxes, entitlements, healthcare. Nothing.

      Libertarianism is a political philosophy, not a an all-encompassing societal transformation. Doctors deliver healthcare, not politicians. Jobs come from profit, not legal mandate. Libertarians offer nothing more and nothing less than acceptance of that reality.

      1. Libertarian elites have NOTHING on ANY major issue to voters — jobs and the economy, taxes, entitlements, healthcare. Nothing.

        Libertarianism is a political philosophy,

        With no political solutions — and no clue on what the problems are. Thanks for proving my point..

        not a an all-encompassing societal transformation

        Society’s already there. Has been for decades. Time to catch up.

        Doctors deliver healthcare, not politicians. Jobs come from profit, not legal mandate. Libertarians offer nothing more and nothing less than acceptance of that reality.

        Libertarian elites offer all the useless bullshit I described, as the only alternative to that status quo. Don’t; assume that all libertarians are as easily satisfied as you.
        Or as eager to be manipulated.

  20. Well, President Trump understands the world’s economies, understands that the U.S. has continually been shit on by foreign countries, understands that previous Presidents did nothing due to both cluelessness and political bureaucratic control, and most of all understands how to actually cripple the bureaucracy and look out for us not corrupt Washington, DC.

  21. It’s elementary: the market had priced in the strong negative consequences of a Hillary win, and when that didn’t materialize, the market rose. So, it’s not so much that people are enthusiastic about Trump’s win, it’s that they are enthusiastic about Hillary’s loss.

  22. So, it’s not so much that people are enthusiastic about Trump’s win, it’s that they are enthusiastic about Hillary’s loss.

    It’s also wacky to claim Johnson/Weld reached a milestone of sorts.

    Do the math.
    5.7% of voters label themselves as libertarians (Cato)
    + the anti-Hillary vote
    + the anti-Trump vote
    = 3.2%?? .. when voters were EAGER for major change.

    What if Johnson/Weld had a comprehensive platform of policy solutions and reforms? Or ANYTHING? Anything at all? They spoke often that 60% of Americans are “libertarians but don’t know it” — but had NOTHING to tell them.

    Overall, nothing on jobs and the economy, or taxes, or health care. Only ONE specific plank. Gary would submit a balanced budget … a LOUD sign that he had no intention of governing … no plan to … and no desire to.

    I blame the libertarian establishment’s focus on “libertarian ideas.” Great slogans for our own tribe. But NO “ideas” of how to do ANYTHING better. Most Americans want 95% of what government provides .. are willing to pay for it … and DID pay for it once, voluntarily. We can’t even restore THAT. Well, our establishment can’t.

    Some of us worked, struggled and sacrificed 40 years or more, for an opening like this. Time and money down a rat hole? Sure looks like it, so far. Hope for change? Slim. Is it tribal to deny libertarian tribalism?

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