As of this week, Donald Trump has been the president of the U.S. for three years. With three years now behind him, how is our economy doing? Over the next few days, we will be sharing the trends from three areas of the U.S economy: The stock market, manufacturing, and unemployment.
The graph above shows that the stock market grew 31% in the 807 trading days before Trump’s election, and then continued to grow by 56% in the 807 trading days after it, up through the third anniversary of Trump’s inauguration. The blue line shows the trend prior to Trump’s election, and the red lines since then, showing increased growth since Donald Trump became president.
Some economists say the gains show tax cuts and freer markets are working. “The administration policies on tax cuts and deregulation have been good for both Wall Street and Main Street,” states economist David Henderson, who served on President Ronald Reagan’s Council of Economic Advisers. He said the big improvement came even despite an expensive trade war. The outcome is the opposite of what some had predicted. After Trump’s election, Nobel-prize-winning economist and staunch democrat activist Paul Krugman predicted: “We are very probably looking at a global recession, with no end in sight”. He was clearly wrong.
Effects on the Economy
In the United States, there are approximately 5,000 publicly traded stocks that can be divided broadly into 11 global industry classifications (GICS). With daily movements across the board, there can be a multitude of effects. Many analysts often zero in on the S&P 500 Index as a barometer for market performance overall and as such as one of the most influential drivers.
Typically, the stock market and economic performance will be aligned, thus, when the stock market is performing well it is usually a function of a growing economy. Economic growth can be measured in several ways but one of the most prominent is by following gross domestic product (GDP). When GDP is growing, individual businesses are producing more and usually expanding. Expanding business activity usually increases valuations and leads to stock market gains.
A rising stock market is usually aligned with a growing economy and leads to greater investor confidence. Investor confidence in stocks leads to more buying activity which can also help to push prices higher. When stocks rise, people invested in the equity markets gain wealth. This increased wealth often leads to increased consumer spending, as consumers buy more goods and services when they’re confident they are in a financial position to do so. When consumers buy more, businesses that sell those goods and services choose to produce more and sell more, reaping the benefit in the form of increased revenues.
Next time, we will look at the manufacturing aspect of the U.S. economy. If you have any questions, please email us at email@example.com.