Keeping Score
Today the United States of America again witnessed a peaceful transition of power from one presidential administration to another. This transition, which has been operational since George Washington left office and John Adams assumed office in 1797, is another example of American Exceptionalism. All Americans should be proud of this tradition.
Many pundits give 100% credit or 100% blame for economic successes and failures to each administration during the calendar dates they occupy the office of the presidency. We don’t see it in such simplistic terms and recognize there are leads and lags between policy implementation and the subsequent economic effects. In our opinion, the complexity of economic systems is far too great to assign 100% proportionality of the policies of any administration to the economic outcomes observed during the dates of the administration. At the same time, we recognize that a mechanism for keeping score without accounting for lags and complexities can still be instructive.
It is in this spirit that we present the scorecard below.
Data Provider Note: GDP, M2 money supply, and CPI consumer price index data provided by the St. Louis Federal Reserve (Federal Reserve Economic Data | FRED | St. Louis Fed). Inflation rate, retail gas prices, S&P 500 Index, NASDAQ Index, Russell 2000 Index, Dow Jones Industrial Average, Gold, Silver and Bitcoin levels provided by Y Charts (https://ycharts.com/).
We compare two distinct periods: 1) Trump’s first administration, and 2) Biden’s administration. In comparing the scorecard for the two administrations, a few points stand out as notable. First, while Biden witnessed a large increase in GDP level, this was accompanied by large increases in money supply, the consumer price index, and the rate of inflation. It is not “new” news that Biden’s administration coincided with a “generational” spike in inflation as the government attempted to overcome the ravages of the COVID pandemic. Yet, even with the inflation, the Biden administration witnessed meaningful economic progress. Equity markets fared well under both administrations, except for small cap stocks under Biden, which languished. On an inflation adjusted basis, equity markets overall fared somewhat better under the Trump administration. But progress occurred under both administrations.
Turning our attention to Trump’s upcoming second administration, it’s hard not to be hopeful. There’s so much on the President’s reform agenda that it is conceivable there will be an economic renaissance and a return to “American Exceptionalism.” However, this is by no means assured and a lot could go wrong implementing Trump’s aggressive agenda. Here’s an interesting thought experiment: what if we assume the second Trump administration delivers something on par with his first administration? This is a huge set of assumptions because his first term was so darn good with respect to the economy. But IF the administration delivers against this expectation, THEN in four years we will see something like this:
Now there are a couple items on this list that would seem very unlikely as a prospective outcome. But there are other items that seems quite likely from where we are today. We could easily see GDP, M2, CPI and Inflation all registering at the levels in the table above, adding about five trillion in GDP and 3.5 trillion in money supply. We could also see gas even below those levels due to the administration’s plans to aggressively produce energy. It seems plausible the equity markets will produce something close to the levels in the table above. If anything, the NASDAQ may fall below those levels, but we would not bet against the S&P Index. We could see that index at 10,000 in four years. It will come down to corporate earnings growth. Gold and Silver could very well conclude Trump’s second term at the levels implied by this admittedly naïve forecasting method. The wild card? Bitcoin. If Bitcoin finishes Trump’s second term at $4,484,000 then our world will have changed radically indeed. This will be a fun four years to participate in with many wildcards to be determined as the future unfolds in front of us.
Our position at WealthPlan is the same as it always is. We build conservative, well diversified portfolios across the risk/return spectrum designed to help our clients grow their wealth, retire comfortably, and sleep well at night. Whatever transpires in the economy and capital markets, we will remain steadfast to our time tested investment management practices.
DISCLOSURES
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 index is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.
The NASDAQ Composite is a stock market index of common stocks and similar securities listed on the NASDAQ stock market. The composition of the NASDAQ Composite is heavily weighted towards information technology companies.
The Russell 2000 Index tracks the roughly 2000 securities that are considered to be US small cap companies. The Russell 2000 serves as an important benchmark when investors want to track their small cap performances versus other sized companies. The Russell 2000 tends to have a larger standard deviation in comparison to the S&P 500.
The Dow Jones Industrial Average, or simply the Dow, is a stock market index that indicates the value of 30 large, publicly owned companies based in the United States, and how they have traded in the stock market during various periods of time. These 30 companies are also included in the S&P 500 Index. The value of the Dow is not a weighted arithmetic mean and does not represent its component companies’ market capitalization, but rather the sum of the price of one share of stock for each component company. The sum is corrected by a factor which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index.
Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.
No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.
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