It's Not All About Trump

The presidential election cycle occurs every four years, no matter what is going on with the economic cycle and stock market.  Obama took office on January 20, 2009.  The country had been in recession 14 months, the housing market bubble had popped over a year earlier, and the S&P 500 had lost roughly -46% of its value.  Since 1900, the average recession lasts 15 months.
The magnitude of the market decline from the October 2007 high to inauguration day 2009 had only been experienced twice before since WW2 – 1973/74 and 2000/02.  On January 20, 2009, there was a high probability the stock market would trade higher over the next four and eight years given the depth of the decline and the duration of the recession no matter who was elected president.
One of the key tenets to successful investing is to buy low.  This is followed by sell high.  Obama’s inauguration missed the ultimate market low by about six weeks.  Today, Obama relinquishes the presidency to Donald Trump.  The S&P 500 is up 167% during Obama’s two terms.  History is likely to judge Obama’s presidency as favorable for the stock market.
The schedule is the schedule and it must be kept.  Trump does not have the freedom to pick which day he is inaugurated.  With the major stock indexes near all-time highs, Trump may have been handed exactly the opposite stock market fate that Obama experienced.  The current expansion has endured for 90 months.  The average expansion since 1900 is just 47 months.
On closer inspection, the timing of inauguration day 2017 may actually be more of a mid-cycle entry point rather than a high.  Trump is becoming president after the slowest expansion on record since WW2.  The tepid pace of growth and meager cumulative advance of the economy may allow for several more years of growth.  Since the prior economic peak in the fourth quarter of 2007, the total cumulative growth of the economy is about 11%.  The average amount of cumulative growth in prior expansions was about 23%.

The Federal Reserve Bank estimates the long-term annualized growth rate of the U.S. economy (real GDP growth) during all periods (expansions and recessions) is roughly 3%.  During the current expansion starting in the second quarter of 2009, real GDP growth has been 2.1%.  Not only is the current expansion the weakest expansion on record so far, the 2.1% expansion growth rate is well below the long-term average growth rate.
The graph above suggests that no matter who becomes the next president today, there is a reasonable probability that the economy has room to expand further before becoming unsustainably inflated and breaking down into the next recession.  Like Obama, Trump may have gotten lucky with his timing.  At the end of Trump’s presidency, we may look back over the Obama/Trump years and say they were the good-old-days of slow and steady growth.

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This commentary and previous editions are available as PDFs:

1/20/2017: It's Not All About Trump
1/13/2017: I Gotta Feeling
1/6/2017: Finally, A Case for International in Your Portfolio
12/30/2016: Predicting the Future -2017
12/23/2016: Bullish New Year
12/16/2016: All I Want For Christmas is Financial Independence
12/9/2016: Debt Trap
Trade What Is, Not What You Think It Should Be – 2017 Outlook

Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of US Capital Wealth Management, a registered investment advisor. Clients of US Capital Wealth Management and individuals associated with US Capital Wealth Management may have positions in and may from time to time make purchases or sales of securities mentioned herein.


Jeffrey Sweeney