Is the ‘Trump Rally’ Really as Great as Everyone Says?

There’s been a lot of talk about the “Trump Rally,” and just how historic it’s been. MarketWatch called it  “the best 50-day performance for a GOP commander-in-chief ever[.]” The media loves to overstate things, and it made me want to dig in and figure out what is actually going on.

Before we dive in, I want to make clear that I have no clue what the Trump presidency will mean for the market or the economy at large. No one knows. The US economy is huge and multifaceted, and the president has a lot less control over what happens than most people think.

It’s nearly impossible for the president to single-handedly grow (or shrink) the economy. The market is going to do what it’s going to do. But we can control how we react to what the economy and the market do and what the press says or predicts about market behavior.

The financial press makes its money through advertising, and advertising dollars roll in when you have a lot of readers. They get readers by hooking us on the fear vs. greed cycle, making you think that this time it’s different.

I’m sure they prefer the market to go up (the reporters have 401(k)s too), but they’ll make the most of whatever is happening in the markets – especially when they can tie it into something as polarizing as the new president.

So let’s cut through the noise of the politicians, analysts, and media and look at the data.

A Look at the Trump Rally Numbers

What we want to know is whether or not the US equity market has looked substantively different from other periods in time since Trump’s election and inauguration. The numbers can be cut up all sorts of different ways, but let’s keep it straightforward.

Using the S&P 500 index as our proxy for the US stock market, we’ll look at two time periods: the last two months (January and February 2017 – the period Trump has been in office), and the previous four months (November 2016 – February 2017 – the period since Trump’s election) and compare them to historical two- and four-month periods. Here are the Trump Rally numbers.

	Total Return
Previous Two Months (January – February 2017)	5.94%
Previous Four Months (November 2016 – February 2017)	12.04%

Data courtesy of Dimensional Fund Advisors.

I like to start with as much data as possible to get a good base line. So, let’s start by comparing against the total history of the S&P 500 Index since January 1926.

We’ll use monthly rolling returns to see how many periods did better or worse than the Trump Rally. The question here is: If you were to pick a random two- or four-month time period, how likely is it that it would be better than what we have seen recently?

	2-Month Rolling Periods	4-Month Rolling Periods
Total Number of Rolling Periods	1,093	1,091
Number of Observations Better than Trump Rally	291	208
Percent Better than Trump Rally	27%	19%
Average Total Return	1.93%	3.89%
Standard Deviation of Total Returns	11.41%	8.15%

Data from 1/26 – 2/17. Data courtesy of Dimensional Fund Advisors.

So we can see that the most recent two- and four-month periods have been reasonably good. They are both a good deal above their respective average returns (though solidly within one standard deviation of the average return). But they were hardly unprecedented.

If you select any random month from the period, you have more than a 1 in 4 chance that the subsequent two months would beat the two months we’ve just had, and almost a 1 in 5 chance that the subsequent four months would have beaten our last four months.

In other words, compared to the long-term data, the Trump Rally has been pretty good, but nothing much to write home about.

But what if we focus a little bit more tightly. Since this is as much a political story as a financial one, what if we look at what the market’s did from 2008-2016 during the Obama administration?

Using the same approach, we see roughly the same story:

	2-Month Rolling Periods	4-Month Rolling Periods
Total Number of Rolling Periods	107	105
Number of Observations Better than Trump Rally	22	15
Percent Better than Trump Rally	21%	14%
Average Total Return	1.44%	3.05%
Standard Deviation of Total Returns	6.81%	9.94%

Data from 1/08 – 12/16. Data courtesy of Dimensional Fund Advisors.

This looks a little bit better for the Trump Rally, but these are effectively similar numbers. The likelihood that a random start month would have better returns than what we have seen recently is a little bit less, but the returns we’ve seen recently would still be within one standard deviation of the average return.

But what about the claim at the start of the article, that this is one of the best starts to a presidency ever? Well, everything still pretty much lines up with the data that we’ve seen previously.

If we look at the first two months after scheduled inaugurations[1], the data is telling the same story.

	2 Month Periods
Total Number of Periods	22
Number of Observations Better than Trump Rally	6
Percent Better than Trump Rally	27%

Data from 1/26 – 2/17. Data courtesy of Dimensional Fund Advisors.

We’re limited by the number of observations – we only get one observation every four years – but the numbers look pretty familiar. Yes, MarketWatch is right – this is the best fifty-day start to a Republican presidency. Overall, it’s the sixth best start of a presidency in terms of stock market returns, but that doesn’t even put it in the top 25% of results.

No matter how we slice up the numbers, the returns tell a pretty consistent story. The Trump rally has been a good one, but not the earth-shattering event that some of the media have portrayed.

So why has the media talked up this rally? Nothing I’ve done here was all that difficult to tease out. The political press (however you want to define that) have their own reasons for spinning the story their own way, but the financial media has been more than happy to go along for the ride.

To see why, you only need to think about what their incentives are. They aren’t there to help you understand the markets or have a good retirement. They are there to sell advertisements. And to do that, they need you to read, watch, or listen to their stuff. The easiest way to get you to tune in is to tell you that something hugely important is happening and this time it’s different.

And (unfortunately) it works pretty well.

In the past two years, we’ve had five huge paradigm shifting events:

• July 2015 – The Greek debt referendum
• August 2015 – Black Monday and the surrounding volatility
• January 2016 – Turmoil in the Chinese Markets
• June 2016 – Brexit
• November 2016 – Trump’s election

All of these have been massively important events. But if the paradigm is shifting every five months, it’s not much of a paradigm. I’d complain that the media is crying wolf, but they’ve been doing it ever since there was a media to speak of.

This isn’t something new – it’s just how the media operates. As Andy Rooney said, “It’s just amazing how long this country has been going to hell without ever having got there.”

So what should you be doing?

First off, ignore the media. They aren’t your friend. They want to put you on the fear vs greed cycle that will only hurt you.

What you should be doing is exactly the same as you should always be doing: stay the course and focus on reaching your retirement objectives.

This time is not different.

To see just how not different this time is, download our ebook

 

[1] To keep things consistent, I’m only looking at scheduled presidential transitions. I am excluding transitions that resulted from presidential deaths or resignations, as those are dramatic events that presumably had a material impact on short-term market returns.