How Much Impact Can Trump (or Any President) Have on the Stock Market?
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"Both the political landscape and financial market are messy places, driven as much by chance as they are governed by regulations."

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A lot has been said about—and by—President Donald Trump and his effect on the stock market. Just Google “Trump Bump,” and you’ll get more than 35 million results.

And it’s true that stocks performed remarkably through the first year of Trump’s presidency. The Dow Jones industrial average rose 25.1 percent in 2017, and Standard & Poor’s 500-stock index gained 19.4 percent. Year-to-date returns for 2018 have been less impressive, but remain in positive territory with the Dow and S&P 500 up about 5 percent and 7.7 percent, respectively, as of September 6.

So the “Trump effect” really is good for markets?

It’s not that straightforward. The tax cut he supported has been a boon for some of the biggest companies on the stock exchange, like Amazon and Apple. But Trump also inherited an economy—and stock market—already on an upward trajectory. And historically, who, or what party, is in office has mattered little to stocks. Let’s look at the numbers:

Since 1900, we’ve had 20 U.S. presidents, including Trump. The three who saw the worst stock market performances during their tenures were all Republicans: Richard Nixon with an average 0.31 percent loss per month, George W. Bush, losing 0.36 percent a month, and Herbert Hoover, with a whopping 2.23 percent monthly drop.

On the other hand, two of the three presidents in office during the top-performing markets were also Republicans. Trump currently holds the third spot, with an average 1.15 percent gain per month, so far. Calvin Coolidge tops the list, posting a 1.74 percent average monthly gain. Democrat Bill Clinton is second with an average 1.22 percent return each month of his eight-year presidency. Barack Obama saw a monthly rise of 1.03 percent.

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What does it all mean?

It’s hard to say. Both the political landscape and financial market are messy places, driven as much by chance as they are governed by regulations. And though they undeniably influence one another, they are also designed to operate independently. Our government, of course, can make certain changes—with trade policies or tax codes, for example—that alter business operations and, in turn, influence the stock market. But the impact of any particular proposal or policy change is difficult to measure, and credit or blame is hard to assign, since the effects of policies put into place under one administration can take years to emerge.

And remember that public policies are established by gaggles of people in a (sometimes forced) team effort. So no president or any one person can shoulder all the responsibility or glory that may result from them. That is the hallmark of our systems of democracy. 

Are you saying it doesn’t matter who’s in the White House?

Well, the president sets the tone of the country in many ways. Sentiment can push stocks up and down as much as earnings and other fundamentals—for better or worse.

Still, no sitting president has changed the long-term trajectory of stocks, which, so far, has been up. Back to the numbers: Only four of the last 20 presidents have presided over periods of loss for the stock market. While Democrat Woodrow Wilson was in office, the market dropped 19.77 percent; the worst cumulative loss, a 75.42 percent decline, occurred during Republican Herbert Hoover’s term.

Otherwise, stocks have risen enormously: Under Coolidge, Clinton and Obama, stocks gained a total 208.52 percent, 202.38 percent and 166.14 percent, respectively. Presidents Eisenhower (R), Reagan (R) and F.D. Roosevelt (D) also served when stocks rose by more than 120 percent. 

What can I take from all this?

Heart. Times have been volatile lately—in politics and investing. But that’s nothing new.

As an investor, you’d be wise to remember the market’s long, positive history and continue to look forward to your own long-term goals. As long as you stick with your carefully planned strategy and maintain a well-diversified portfolio, you are highly likely to achieve your goals—no matter who is president.

This post was updated on September 6, 2018.

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