Last year TheStreet was reporting that if Donald Trump were elected president, markets would fall. We cited a Brookings Institution study that forecast benchmark indices in the U.S., U.K. and Asia would fall by 10% to 15%. We reported that Moody Investors Service prediction that a Trump presidency could send the U.S. into a lengthy recession, boost unemployment to 7.4% and cost 3.4 million jobs. Bankrate.com, we said, also warned of the onset of a recession in 2017 and stock market declines of as much as 15%.
Sorry about that. In the event, the major stock market indexes have set dozens of records this year, unemployment is down, and U.S. economic growth indicates there's no recession looming. We hope you haven't been shorting the S&P 500.
A year later, we're trying to figure out why our sources were wrong and what effect Trump has had on investor confidence and therefore on stock market prices. And we've concluded what we should have known in the first place: that markets are rational.
Emily Stewart, the reporter who covered the election and the Trump presidency for us, had an observation about how markets react to potential presidential action. She contrasted the effects of Trump's presidency with what might have happened if Hillary Clinton were elected, and noted that when Clinton once tweeted about the high prices charged by drug companies, biotech stocks fell.
"If you assume that markets are smart, it's because they bet on things that they think will happen," Stewart said. "In the case of Trump, they are making bets in the belief that he will do nothing."
Even threats to rain a nuclear holocaust onto the Korean peninsula haven't stemmed confidence in the stock market, which is rising more because of robust current profits and anticipation of future profits than to specific major legislation the Trump administration has passed. Rather, corporate executives and investors are prospering under the old Obama economy, which generated five straight quarters of stock market gains and 75 months of job increases, without the fear that a new Clinton administration would act to boost regulations or otherwise inhibit the market's animal spirits.
Trump's general lack of attention to detail has enabled CEOs — who, by and large, are extremely detail-conscious — to focus on generating profits and encourage investors to buy their stock. Trump's huge presence in the media as well as in many people's ordinary consciousness has been offset by a real-world absence by government, shown not only by his refusal or inability to attract qualified employees from the Cabinet on down but also by a sense that Trump doesn't really care how companies generate profits, just that they do.
So, though Trump has yet to sign any significant legislation, there's an expectation that were he ever to do so, the results would benefit U.S. companies. Trump has repealed Obama regulations covering issues including the environment, gun control, labor law, retirement plans and hunting wolves in Alaska, and the effect has been to relieve many companies of the threat of U.S. regulators. Not only is it less likely that companies will be obliged to conform to the rules that are already in place, but they can anticipate that current regulations may not be enforced, or if violated, be prosecuted. For corporate America, having Trump as president is a bit like having a substitute teacher in junior high: you can get away with a lot of bad behavior.
Gaining relief from onerous legal fees, not to mention fines or sanctions, isn't the only benefit corporations and their investors reap from the Trump regime and a weakened regulatory environment. As seen by the proposed cut in the corporate tax rate from 35% to 20%, Trump and the Republican-led Congress are signaling that perhaps the highest goal of society is the creation of the greatest profits for businesses and the preservation of the greatest wealth for the one-percent. That can only be good for the stock market.
Whether what's good for the market is good for most Americans or the other people we share the planet with is debatable, but don't expect President Trump to get involved with that. He's repeatedly said that markets are up because of him, and even suggested that the $5 trillion in value markets have added since last year somehow offsets the $20 trillion U.S. debt. His vanity and solipsism are in a sense an asset for investors.
And so here we are, a year later, with corporate profits rising and little sign that companies are investing in plants and equipment or offering higher wages to workers. So who's getting the money? Shareholders as well as the executives and board members of the companies behind the profits. By signaling the primacy of corporate earnings, Trump promises to be very good for the stock market.
Until he's not.
TheStreet's feature series "Inside Trump's First Year" looks at the biggest stories in business over the last year fueled by one of the most unpredictable presidents in history. Most importantly, TheStreet offers a glimpse into what could happen in 2018 on a range of issues -- and stocks -- in what will probably be an equally chaotic second year for Trump. Read more by tapping the photo below.
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Editors' pick: Originally published Nov. 10.