Bill Clinton’s 1992 campaign tagline of “It’s the economy, stupid” is a general summation of the public’s attitude toward a President’s role in economic growth, or lack thereof. The national economy is so multilayered and is tied to so many moving parts from all around the globe that to suggest its growth is tied to the workings of one man is laughable.
Nonetheless, it is often used by a President’s supporters or detractors as a barometer of his success in office. Or, in the case of President Trump, the President himself. Take, for instance, President Trump’s October boast about the growth of the stock market under his watch, according to White House transcripts. “The stock market is at an all-time high,” President Trump said.
“Think of that – over 50 percent since my election. Fifty percent. People – the 401(k)s – and they have 401(k)s, and they were dying with them for years. Now they’re so happy.”
Putting aside the overall veracity of that statement for a moment, the simple truth is that President Trump is absolutely correct about that first phrase– the stock market is at an all-time high. It has made significant gains in President Trump’s two years, though nowhere near 50 percent. What President Trump fails to mention, however, is that pretty much every President since Herbert Hoover has been able to claim that the stock market is at an all-time high at some point during their presidency. With economic growth and inflation, it is just the nature of the beast.
Presidents don't control stock markets, market is not the economy, etc. Still, once upon a time, Trump used to brag that market gains were a good metric of his success.— Catherine Rampell (@crampell) December 4, 2018
Here's how S&P 500 has fared under Trump vs. Obama, through comparable dates in their respective presidencies pic.twitter.com/trC7R7fxbi
Perhaps a better way to determine stock market growth is by measuring the return on investment. At the moment, the stock market during President Trump’s administration has enjoyed a 26.2 percent return on investment in the S&P 500, which seems impressive with no context. Going back 50 years to the Nixon presidency, a much different picture of the stock market success during Trump’s administration begins to emerge, according to Yahoo Finance.
The Nixon administration was a troubled time. The Vietnam War had long since declined into a military and public relations disaster, and the Watergate scandal widened an already-formidable gap in the trust that the American people placed in their government. President Nixon pushed the Federal Reserve to print money as President Johnson had before him in an effort to bolster a struggling economy but instead created a prolonged period of stagflation. The Saudi Arabian nationalization of their oil industry helped create gas shortages and rationing. It was not a time of economic optimism. From 1968 to 1972, Nixon’s first term in office, the return on investment in the stock market was a paltry 10.6 percent. During his ill-fated second term, which was concluded by President Ford, investors actually lost money, to the tune of a negative 9.5 percent.
Into this environment stepped Jimmy Carter after his election in 1976. The Federal Reserve Reform Act was passed in 1977, and it was partly designed to give the Fed more independence from presidential manipulation. In an effort to combat stagflation, the Federal Reserve steadily increased rates under chairman Paul Volcker, ultimately reaching as high as 19 percent. The stock market actually rebounded during President Carter’s only term, earning a 25.2 percent return on investment, but overall economic growth had stalled, and President Carter would pay the price when he lost re-election.
Ronald Reagan’s first term as President began what would become a sort of Golden Age for stock market returns, but it didn’t come easy. Volcker’s Fed interest rates were at the aforementioned astronomical 19 percent during Reagan’s first year in office, which had ceased the brutal stagflation period but left economic growth perilously small. This set the stage for Alan “Easy Al” Greenspan, who would steadily decrease interest rates and keep them low for an extended period. It would also be a boon for dollar-denominated assets like stocks. President Reagan’s first term brought a 30.6 percent return on investment, and he followed that with a whopping 61.5 percent return during his second term.
President Bush continued the strong showing of stock market returns during his first term, posting a 52.6 percent return, but a mild economic recession curtailed his hopes for re-election in 1992. Bill Clinton, reaping the benefits of the Internet and the dot-com boom, posted the most massive returns on investment in the stock market in modern history, reaping 70.1 percent during his first term and following that up with an incredible 100.5 percent return during his second term.
The presidency of George W. Bush was beset by crippling economic failures that were mostly not of his doing. He inherited the bust of the dot-com bubble from Clinton, then 9/11 sent investors into a panic before Bush had even finished his first year in office, with the prolonged war in the Middle East soon to follow. The stock market tanked and didn’t recover. The market during Bush’s first year suffered a 21 percent loss on investments, followed by another 11 percent drop during his second term, including a 40.8 percent freefall over the final year of his presidency. The overall economy, meanwhile, found a surrogate for the stock market in real estate, allowing for an investment bubble that would soon burst.
That bubble burst during Barack Obama’s first year in office, leading to the worst economic recession since the Great Depression. Yet both the market and the economy would recover over Obama’s eight years. During Obama’s first term, the market posted a 42 percent return and improved to a 49.8 percent return during his second term.
Viewed in this light, the stock market returns during President Trump’s first two years in office have largely paled in comparison to those of his predecessors. There have been 13 four-year terms of office since President Nixon was elected in 1968, and President Trump’s return rate of 26.2 percent ranks 8th among them, just ahead of President Carter’s 25.2 percent.
No wonder President Trump has stopped talking about the stock market, as reported by the Hill.
“President Donald Trump’s stock market bubble cheerleading means that he now has ownership of it, which is a double-edged sword – it makes him look great as the bubble inflates, but it could easily destroy his political career and legacy when it inevitably bursts,” said Clarity Financial economic analyst Jesse Columbo in Forbes.