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January 20 2017

President Trump’s Term is Unlikely to be the best for US Equities

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US equities are unlikely to perform better during President Trump’s tenure than under many of his predecessors, analysis by Source, one of Europe’s leading ETF providers, shows.

The analysis shows that the S&P 500 delivered an annualised return of 13.9% under Barack Obama and 15.2% under Bill Clinton, ranking their terms fifth and third respectively in terms of stock market gains (since 1853).

But with the S&P 500 currently on a Shiller Price-Earnings ratio of more than 28 it is unlikely that it will do better under President Trump, Source says.

Paul Jackson, Head of Research at Source, commented: “Such a high Shiller ratio is more commonly associated with negative future returns. Valuations are an important determinant of future returns: Reagan and Obama were helped on that front, as were Harding and Coolidge in 1921. President Trump does not have that luxury. He should not measure himself by what the US stock market says as I fear the judgement will be harsh no matter what he does.”

Fig 1: US stock gains by president since 1853

 

The analysis shows that since 1853, the best annualised returns by the US stock market were made under presidents Harding/Coolidge (17.7%,1921-29); Hayes (15.6%, 1877-1881); Clinton (15.2%, 1993-2001); Lincoln (14.4%, 1861-1865); and Obama (13.9%, 2009-17).

Simplifying personal and corporate taxation is one of the policy initiatives intimated by President-elect Trump. Source analysis shows that the sectors that currently pay the most tax and would therefore be likely to benefit the most are retail, industrials, financial services and media. The sectors that would have least to gain from tax cuts include real estate, autos, travel & leisure and healthcare

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