Hope and Change - Trump Style

By: Frank Yunker

Date: 2017-01-19

The stock market, represented by the Dow Jones Industrial Average, serves multiple purposes. Like the definition of money, the Dow Jones represents both a store of value (where you put your wealth) and a measure of value (how much wealth you have and what it can buy). Changes in value represent changes in the value of the assets but also changes in the PERCEPTION of how that asset will be valued in the future. Investors put their money where they perceive it will grow. They take their money from companies that have a poor outlook on the horizon.

Simply, the Dow represents total value, but as it changes it represents perceptions of the future. In other words, Dow changes represent Hope and/or Pessimism. In the 13 months prior to Barack Obama's election in 2008, the market had sunk 31% from it's 2007 high. The economy often plays a pivotal role in the election and a Democrat in 2008 would not have to be as charismatic as many find Obama in order to defeat the Republicans.

How did the market respond to the new President's message of hope and change? It sank another 17% from election day until inauguration day. Let that sink in. The market heard the message of hope and change and did not believe it. The market expressed no confidence in Obama and his policies.

Contrast that to this year and the controversial Donald Trump who declares war on Twitter on a regular basis. From Election Day until Inauguration Week, the market has soared 11%. Paul Krugman, the economics professor from Princeton with the questionable Nobel Prize in economics, stated on Election Night 2016 that "markets were plunging" and "If the question is when markets will recover, a first-pass answer is never." By midday, the market was soaring. Clearly, Krugman is not psychic.

Trump's "Hope and Change" is not surprising considering the "Brexit Bump" felt after the June 2016 Brexit vote. It took 2 down days for the markets to adjust and by the 4th post-Brexit day the market was in positive territory. By the year's end, the FTSE 100 was up over 12%. British investors reaffirmed what the voters knew. Britain was would be "Great Again" if they didn't have their economic life controlled by Brussels and the European Union.

Until Trump implements some economic policies, the future remains uncertain. But investors, nonetheless, believe policies that allow businesses to grow will outweigh the tariff-laden threats from Twitter. We shall see.