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Morning Commentary

Trump Rally vs Obama Rally

By Charles Payne, CEO & Principal Analyst
9/14/2017 9:45 AM
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The market rally has taken on a renewed vigor since the election of President Trump. Many folks that missed the move during the Obama presidency are wondering if they should chase stocks now. 

Answering that question means understanding the difference between the Trump Rally and the Obama Rally. There are three major differences:

Starting Point for Stocks

Barack Obama was elected on November 4, 2008, the day the Dow closed at 9,625. The following day, it closed at 9,139, down 486 points. By March 2009, the index tumbled to a low of 6,547.

Conversely, stocks rallied the day after President Trump was elected on November 8, and they haven’t looked back since adding trillions in wealth for holders of American stocks. 

It’s a lot harder to extend a rally that is already the second oldest on record. The message from the market was clear out of the gate. 

As a harbinger of things to come, the market is saying things will get much better.

Mood of Nation

Optimism plunged in 2009 and struggled throughout the tepid recovery that couldn’t even produce a single year of a 3% growth.  Fast forward: we got microwave optimism with President Trump in all areas of the economy. It’s mind-boggling how so many measures of confidence are the antithesis of those record low ratings from pollsters.

Of course, those pollsters don’t have a very good track record.

Surging out of the gate, consumer confidence remains elevated, although bifurcated. Republican voters have never been this optimistic and independent voters are also overly hopeful. Only Democrat voters voice pessimism.

Homebuilder confidence has been buoyed by an expansion of traffic as home ownership and the American dream has returned. Long-term, nothing will spur the economy more than a baby boom associated with a renewed family formation.

Small businesses optimism is at record levels as the biggest job creators in the nation are the most excited about fewer regulations and lower taxes. 

Economic Trends

Job growth is robust with a record 6.2 million openings.  Corporate profits are surging, propelled by top line growth rather than buybacks and gimmicks. Business investment is climbing, and consumers are spending.  With a few weeks to go before the third quarter is in the books, there is a great chance of back-to-back periods of a 3.0% growth.

Risk Factors

The Federal Reserve

There are other factors that will impact the market from time to time including the way the Fed handles its bloated balance sheet and rate increases.  On that note, the fact the Fed has entered a tightening phase, and is looking to let assets run off their balance sheet, is bullish.   Obviously, when the Fed is “accommodative” the goal is to inflate asset prices, which in turn would spur a sense of wealth that could become self-fulfilling.

So, when they “remove the punch bowl” the idea is asset prices will deflate.  Sounds reasonable.  The only problem is asset prices have other tangible determinates.  Part of which are macro-economic conditions.  The same forces that allow the Fed to hike rates, and whittle down their balance sheet, bolster the argument for higher asset prices based on fundamentals- not gimmicks.

Washington, D.C. Dysfunction

The inability of Republicans to repeal, replace or even amend Obamacare left many feeling like other major objectives of the Trump Agenda might not come to fruition.  Those concerns have only intensified as President Trump has had to reach across the aisle on a deal to keep the government open and increase the debt ceiling. 

The GOP is still in disarray with various factions promoting, even unveiling, their own tax packages and goals.  Committees in charge of cobbling together a final package are still waiting for their marching orders. 

The good news is President Trump is taking the bull by the horns.  He will hit the road covering 13 states in an effort to promote tax reform, while the White House enhances its communication staff with some great folks (a couple I know personally) that will help craft messages. 

The good news for investors is the economic needle has begun to move, and it has momentum that won’t go away overnight.  Businesses are back to being businesses looking to grow and take market share via innovative products and services.  That all generates economic activity that goes miles beyond Federal Reserve gimmicks.

Geopolitical

North Korea saber-rattling is finally impacting markets.  Of course, they have gotten the world’s attention holding an ICBM in one hand and a nuke in the other.  It’s a serous wildcard and only the notion Kim Jong Un is not really insane has stopped the market from recoiling.   I’m not sure he is sane, however, and think we need to put him to the test at some point rather than live with a cloud of anxiety.

For now, I wouldn’t alter my investment approach based on North Korea shenanigans, but I understand at some point it could spur weakness and increase volatility.

Bottom Line

 The Trump Rally is real and based on optimism that is already turning the wheels of commerce.  We are in the midst of going back to our roots where believing dwarfs doubt, and we took risk, made investments, and know all we had to do was apply elbow grease to achieve the American Dream.

It’s a tenuous step.  We’ve spent the past eight years hearing we weren’t great, or exceptional, and far too many Americans took it too heart.  The key ingredient to all of this is success beget success.  All the pieces are in place. 

This rally is different and has potential to be great.  I know lots of folks missed the rebound that began in March 2009.  It wasn’t unreasonable to be skeptical back then, but the market was extremely oversold. That was the primary reason for the rebound, coupled with Federal Reserve action and global money seeking comfort in US assets.

To be skeptical now means you have not only lost faith in what America has been, and continues to be, but aren’t paying attention to factual developments.

 

 


Comments
Excellent. I hope more people will wake up and see what is happening.

Jim Rawson on 9/14/2017 10:45:17 AM
Really happy to see you back, love your commentary!

Fra on 9/14/2017 10:53:00 AM
What a Great commentary!! Thank you so much for putting out, for people to read!

Bridgette Pinkelman on 9/14/2017 3:31:51 PM
Thanks Bridgette It is a lot of work but necessary to understand what's really going on and to find opportunities. Its always nice to hear gratitude because the work isn't mailed in or that street mumbo-jumbo that barely scratches the surface. CP

Charles Payne on 9/14/2017 3:43:10 PM
I'm so happy to have you back on FBN.

David Jasinsky on 9/15/2017 4:19:52 PM
 

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