Run-up Sets Record for GOP Presidents
Stocks continue their remarkable run. Since President Trump’s inauguration, the popular Dow Jones Industrial Average is up 23% with just one week left in 2018. That is a record for a Republican President, slightly ahead of the 22% gain during the first year of President George H. W. Bush. While Trump’s record leads for Republican Presidents, it ranks fourth overall. Three Democratic Presidents, Lyndon Johnson, Barack Obama and Franklin Roosevelt were higher, 23% (ahead by .4%), 32% and 98%!
President Roosevelt entered office during the Great Depression in the aftermath of the 1929 stock market crash. President Obama took office at the tail end of the most severe financial crisis. The stock market hit bottom two months after his inauguration, starting the bull market that is ongoing today.
As these results indicate and most stock analysts agree, other factors beyond election results drive the directions of stock markets. The most significant is overall economics and America’s economy is in good shape. Business confidence is high, jobs are plentiful, the unemployment rate is 4.1%, the lowest in a decade, and wages are (finally) growing in real terms with good gains for low-paid workers.
Global economies are also doing well. For about a year, global economies have expanded in sync in Europe, Asia and the Americas. Central banks, which took rates down to zero or even below, have room to tighten rates as a check to possibly returning inflation without choking recoveries.
Recovering stock markets bring concerns of overvaluation. So far, most traditional stocks have not kept pace with the speculative froth as returns over 15% in the past five years are running about five percentage points ahead of average. Extending the period to twenty years, a period that includes both the financial crisis and the bursting of the 1997-2000 dot-com bubble, shows an average annual gain of 7.2%. Not bad, perhaps, but that’s well below the historic market returns over a 20-year period of 11.1%.
Returns this year have been dominated by technology stocks and some like Amazon classified in the consumer-discretionary stock sector. While this may stir memories of the dot-com era, information technology is accelerating at a pace that will lead global economies for years.
Ten years ago, Steve Jobs introduced the iPhone, the most innovative product to blend a media player, a telephone and Internet into a pocket size device. Apple (AAPL-$175) has since sold well over a billion iPhones and its continuing ability to innovate past the limited visions of critics keeps it as the #1 stock in the portfolios I manage.
Ten years ago, there was no Facebook, no Twitter, no Skype, no Amazon Kindle and IBM was just beginning Watson, its Artificial Intelligence machine. The decade included other revolutions. Clean power saw dramatic changes in solar, wind, LED’s, energy efficient buildings and electric vehicles. DNA sequencing costs fell from around $50 million for a complete human genome to less than an iPhone.
Economic and technological accelerations are accelerating globalizations. Unfortunately, they accelerate climate change, population inequalities and biodiversity loss. These present social and political vulnerabilities that will challenge all economies. The current economic cycles are encouraging increasing business investment that will fuel profits and automation. Productivity, which has lagged since the financial crisis, will also increase.
The market’s extraordinary 2017 performance has been uniquely consistent. The Dow Jones Industrial Average is on track for its ninth straight monthly rise, which would be the longest since 1959. The broader S&P 500 stock Index, with dividends included, is apparently headed for posting positive monthly returns for all 12 months of 2017. It’s put together positive return 12-month streaks but never across a calendar year and it looks like Santa may be filling investor stockings.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622
www.crowellroberts.com
