Stocks are heading for the worst year since before Obama
The S&P 500 stock index is now down about 1.5% for 2018. If it ends the year there—or lower—it will be the worst annual performance for the S&P since markets crashed in 2008.
The stock market, of course, has been in a bull market since March of 2009, with only a few corrections along the way. We’re in a correction now, with stocks down about 10.2% from the high of Sept. 20. A correction is a drop of 10% or more, while a bear market is a 20% drop, or greater. The last bear market ended in 2009.
Here’s the annual performance for the S&P 500, calculated as the percentage change at the end of December, from the December before:
There’s a silly manhood contest between supporters of President Trump and President Obama over who presided over a more robust stock market. Here are the numbers for the same period of time in the Trump and Obama first terms:
At any rate, it’s totally irrelevant which president produced better stock market performance, because many factors beyond the control of the president determine the direction of the stock market. Obama came into office when an epic plunge in stock prices was nearly over, and stocks went up for most of his two terms. Trump came into office as a long and slow economic recovery was finally picking up steam, with job growth under Trump roughly the same as it was during Obama’s last two years.
Trump supporters claim Trump policies—including sharp corporate tax cuts and deregulation—have stimulated the economy above Obama-era levels. But if so, the stock market’s performance in 2018 sure hasn’t reflected that. It’s even more odd that stocks have slipped in 2018 because corporate profits have soared on account of the tax cuts.
More important than arguing about presidents is figuring out what a wobbly stock market seems to be saying about the future. Investors are vacillating between pessimism and optimism right now, with this fall’s selloffs revealing worries about slowing economic growth and profits, and a damaging trade war with China. Yet job growth is still good and unemployment remains extremely low. Consumer spending is strong and many companies can’t find enough workers.
Trump is contributing to investor worries with his on-and-off trade disputes. When profits were soaring and GDP growth came in above 4% earlier this year, markets brushed off the trade wars. But with the growth and profit boom possibly in the past, markets are more vulnerable to tariffs and other protectionist measure that add to costs on consumers and businesses. So if Trump is able to end his trade dispute with China, that in itself might give stocks a bump. They could certainly use it.