Biden’s Stock Market Outperforming Trump’s

Biden’s Stock Market Outperforming Trump’s

You probably shouldn’t follow Donald Trump’s investment advice.

In 2020, Trump predicted that “the stock market will collapse» if Joe Biden becomes president. Biden did so, and stock investors have since made big profits.

Since Biden took office, the S&P 500 stock index has risen a good 40%, capped by a five-month rally that began last October and is still continuing. At the same point in Trump’s presidential term, the S&P was up just 13%.

There is a huge asterisk. Stocks performed well under Trump until the COVID pandemic hit in February 2020. During each president’s first three years, in fact, Trump’s stock market outperformed Biden’s market by about 5 percentage points.

The COVID pandemic, however, triggered a sharp sell-off in stocks in the first half of 2020 and a deep, albeit short-lived, recession. Trump liked to brag about the stock market and the economy during his time in office, but COVID left Trump with a damaged economy, contributing to his loss to Biden in 2020.

Of all the factors that affect stock prices, presidential policies are not normally among the top five. So it might seem a bit silly to compare stock returns under the two presidents, who are headed for a 2020 rematch in this year’s presidential election.

Except Trump himself takes credit for rising stocks, even when he’s not in office. When he was president, Trump repeatedly boasted when stocks rose, attributing the gains to his own policies. Earlier this year, three years after leaving office, Trump even claimed that stocks were rising because he was ahead of Biden in the polls and investors were betting on another Trump presidency starting in 12 months.

Back in 2020, Biden sounded Trump for his stock market boasts, arguing that Trump was arguing gains for the investor class that ordinary workers could not enjoy. But even Biden now likes to remind voters that “the strength of the stock market is a sign of confidence in the American economy”.

Rising stocks are certainly bullish for the U.S. economy, and they should be bullish for the outgoing president. More … than 60% of Americans own stocks – mainly in their retirement accounts – and when the value of the investment accounts increases, a “wealth effect» makes people more optimistic and more willing to spend money.

Generally speaking, U.S. stocks normally rise over time as long as the economy is growing. However, presidents do not have as much impact on stock values ​​as the public or even presidents themselves might believe. The Federal Reserve’s monetary policy is often the main force pushing stocks up or down, along with economy-wide trends that presidents can’t necessarily control.

In the midst of the Great Recession of 2008 and 2009, the Fed embarked on new and powerful forms of Monetary easing which sustained stock market gains for much of the next 11 years. The Fed tried to withdraw from these policies at the end of 2018, and the shares faded. The Fed has eased its policy.

When COVID hit and stocks fell in 2020, the Fed went right back to its Quantitative Easing Playbook. Congress also passed massive fiscal stimulus in 2020 and 2021. This combination helped stocks recover quickly in 2021 and brought the U.S. economy out of the COVID recession faster than any other advanced country.

Biden’s Stock Market Outperforming Trump’s

Traders work on the floor of the New York Stock Exchange during the afternoon of March 27, 2024, in New York. (Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)

As inflation intensified in 2021 and 2022, the Fed had no choice but to start raising interest rates, which tends to depress stock market gains as borrowing becomes more expensive and corporate profits more difficult to achieve. After a nice rise in 2021, stocks fell in 2022, reaching a low point in October of the same year. The S&P 500 climbed up and down for about a year as investors half bet and half hoped that the Fed’s inflation battle would succeed. Last fall, it looked like inflation had eased and the Fed’s rate hikes were over, helping spark the current recovery.

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On paper, Biden’s favored policies should be negative for stocks. He supports a higher corporate tax rate and signed legislation a slight increase in taxes on large businesses in 2022. But Congress couldn’t pass the rate hike Biden called for, and other tax hikes simply haven’t reduced corporate profits enough to depress stocks.

However, there is no indication that voters are rewarding Biden for a roaring stock market or a relatively healthy economy. Her approval rating has dropped in 2021 and 2022, as inflation worsened, but it has not recovered although inflation has almost returned to normal levels. Many Americans complain that most of the price increases for groceries, rent and basic necessities are still there, even though the overall inflation rate has fallen.

With Biden and Trump neck and neck in the polls, Biden will likely highlight anything that might make voters feel a little more comfortable giving him four more years in the White House. Biden didn’t run for president the first time with the goal of making investors rich, but now that it’s happened, why not let people know about it?

The only risk, as Trump should know, is that there is little a president can do to stop a reversal if that’s what the market decides to do. And then you have some tricky explaining to do.

Rick Newman is a senior columnist for Yahoo finance. Follow him on Twitter at @rickjnewman.

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