Tweets and speeches don’t drive the stock markets – numbers do
It's now clear that the investigations into President Trump are likely to continue through the 2020 elections. What's still uncertain is the impact that these investigations will have on the stock market.
After rallying since Trump's election victory in November 2016, the S&P 500 Index has done pretty well, but it has stumbled at times too:
- Ending 2016 up +11.96%;1
- Zooming up +21.83% in 2017;
- Dropping -4.38% in 2018; and
- +20.55% so far year-to-date at the end of the third-quarter in 2019.
Although stocks have rewarded investors with healthy returns, investors seem more nervous that Trump will be impeached because not only will his pro-business agenda be stalled, but the chaos could send the markets into a tailspin. At least that’s the worry.
And although no one has a crystal ball to tell us how the Trump investigations will end, investors would be smart to tune them out. Here are a few reasons why.
Economics Matter More than Tweets
Traditionally, economics and numbers matter way more than politics to the stock market. While Trump's tweets and speeches get all the media attention, and while the market might seem to react a little bit at times, the reality is that boring economic numbers drive the markets one way or the other. And consider these numbers:
- Unemployment is at 3.7%, one-tenth of a percent from the lowest level in over 50 years.2
- We have seen 107 consecutive months of job growth, the longest streak ever. 3
- Wages have risen 3.2% this year, the strongest year in over a decade.4
- Inflation has run below the Fed's intended longer-term 2% target for most of this 10-year expansion and core inflation has averaged 2.1% so far this year. 5
- Consumer spending came in much higher than expected with a 4.7% annualized growth number, the highest gain in 4 years.6
Impeachment is Unlikely Anyway
Investors should remember that impeachment is very unlikely as no U.S. president has ever been impeached and kicked out of office.
Andrew Johnson and Bill Clinton were both impeached, but they were acquitted in the Senate, where a two-thirds majority is required for conviction. Richard Nixon avoided impeachment and conviction only by resigning office.
Earnings Drive Stock Prices
What should investors worry about? Numbers. Specifically, corporate earnings.
It’s an investing adage that earnings are the lifeblood of the stock market. Stocks move in response to real or perceived earnings changes.
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