There's an easy way to show the stock market rally has little to do with Trump

  • President Donald Trump loves to take credit for the relentless rally in stocks that took on fresh momentum in 2017.
  • A Council on Foreign Relations analysis uses international stock comparisons to show US markets have been riding the coattails of stronger global growth.
  • Interest in equities from other rich nations has been nearly as strong during the rally, suggesting US policies have little to do with the market’s strength.

President Donald Trump tends to get really excited about a rallying stock market, neglecting that most of the benefits from rising share prices accrue to the richest Americans.

He also loves to take credit for the run-up in equities that, while having preceded him, took on new momentum in 2017. Unfortunately for him, not only do presidents generally have little control over the direction of financial markets, but there is a particular reason not to ascribe the recent record-breaking surge in stock prices to this administration.

My colleague Joe Ciolli has analysed Trump’s stock market claims extensively, finding that “while there have been times this year when the so-called Trump trade – or the promise of business-friendly policies – has undoubtedly been responsible for the gains, there have also been long stretches when other factors were driving returns.”

Now a new analysis from the Council on Foreign Relations takes a different approach to dissecting Trump’s stock market claims – but comes to a remarkably similar conclusion.

“The S&P 500 index is up 28%,” a CFR economist, Benn Steil, and analyst, Benjamin Della Rocca, write in Foreign Affairs. “But is the president right to credit himself? A wider and closer look at the numbers shows he is not.”

“With the exceptions of a post-election bump, subsequently reversed, and the recent boost from Republican tax cut legislation, which the president has merely cheerled from the sidelines, the markets have done no more than reward US stocks for riding the coattails of global growth,” they argue.

To be clear, US markets have outperformed many of their rich-country peers. The Dow Jones industrial average has jumped 23% this year, while Germany’s DAX, for instance, has put in a solid but less impressive 15%. It is overseas growth, however, including in Europe and in China, that has shown surprising strength this year, underpinning equities globally.

But Steil and Della Rocca try to “extract the market’s expectations of earnings prospects around the world” to gauge “to what degree the US market actually stands out.”

The results suggest the “Trump effect” on stock prices was “precisely nil: the U.S. market under Trump had done no better than its peers abroad.”

As the chart below shows, investors were just as keen to buy Canadian, European, and Japanese stocks, “even though the policy agendas under which those companies operate are very different from those in the United States.”

International Equities CFRBenn Steil

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