Part One of a Three-Part Series.
With Bernie Sanders now the frontrunner for Democratic Party’s presidential nomination, we wondered what the impact would be on the stock market and the economy if America had a socialist president.
We figured one way to find out was to read what the experts had to say – then turn it 180 degrees to find the truth.
What the Experts Said
Past experience suggests that the experts are frequently wrong, and not by a small margin. Consider that when Donald Trump was elected president, economist Paul Krugman predicted that the stock market would never recover.
He wasn’t the only one to predict dark days for stocks.
In a note to clients, Citigroup said the S&P 500 would immediately fall by 3% to 5% if Trump were elected, while a victory by Hillary Clinton would have little impact. Citibank added that a Trump win would pose a big risk to stocks in the long term.
Then there was PBS News Hour, where Dartmouth economics professor Eric Zitzewitz predicted that a Trump victory would result in a 10% drop in stock prices – worldwide.
Simon Johnson, a professor at MIT’s Sloan School and former chief economist of the International Monetary Fund, likewise wrote, “Investors in the stock market currently regard a Trump presidency as a relatively low-probability development. But, while the precise consequences of bad policies are always hard to predict, if investors are wrong and Trump wins, we should expect a big markdown in expected future earnings for a wide range of stocks – and a likely crash in the broader market.”
Then There’s Reality
But the prognosticators were as wrong about the impact of a Trump presidency on the stock market as they were about who would win the election.
In spite of President Trump’s trade wars … in spite of efforts to impeach him … in spite of high staff turnover, ill-considered tweets and resistance from many quarters, the stock market has, instead, jumped in value by 50% since his election.
According to CNBC (quoting Bespoke Investment Group), “The S&P 500 has returned more than 50% since President Trump was elected, more than double the average market return of presidents three years into their term.”
The economy, meanwhile, produced the lowest unemployment rate in 50 years and a temporary return to 3% growth – and growth would undoubtedly have been higher without tariffs and trade wars.
Love him or hate him, President Trump has been good for both the economy and the stock market, which is not what many experts predicted.