Olympus hasn’t fallen

  By Guest Blogger Doug Rowat

Clients worry about Donald Trump. And I, from time to time, worry about Donald Trump as well. Fortunately, we’re in good company because on any given week there’s probably not a CEO of a major corporation, a US politician (GOP included) or a world leader who isn’t also worried about him.

But now that we’re approaching three years into his presidency, let’s put all this worry into perspective:

• The US economy has experienced positive GDP growth every year since he became president:  +2.4% in 2017, +2.9% in 2018 and, likely, +2.3% this year. While not otherworldly, these are all solid growth numbers.
• The US labour market has been strong. Jobs have been added every single month during his presidency with a monthly average of 191,000 new jobs, well in excess of the long-term average of 92,000 new jobs. The unemployment rate is 3.7%, hovering around record lows.
• The S&P 500 has averaged a 12.3% annualized total return thus far since his November 2016 election win with corporate profit growth of 11.4% annually. Not spectacularly in excess of market returns during other presidents’ tenures but still very good.
• And, though it’s hard to believe given the seemingly endless barrage of negative headlines, market volatility has actually been incredibly low throughout his presidency with the Cboe VIX Index averaging only about 14 versus its long-term average of 20. In other words, markets have been 30% less volatile under Trump. Yes, like it or not Trump critics, the evidence suggests that Trump has actually been a calming influence.

CBOE Volatility Index – 20 years: Long-term average (white line) ve Trump presidency average (green line)

Source: Bloomberg, Turner Investments

Evaluations of Trump’s presidency basically boil down to two arguments: 1) Trump’s such an awful president that the economy and the stock market would have been much better if he didn’t screw everything up or 2) He’s a fantastic president who’s solely responsible for all the good things that have happened to the economy and the stock market.

If the answer is 1), that’s terrible, but then clearly the US economy and corporations are resilient enough that they’ve very easily weathered his incompetence. If the answer is 2), then we’re in good hands.

Probably the truth lies somewhere in between, but if you look at the bullet points above, one conclusion is obvious, even if you hate Trump: you need to stay invested in US markets regardless of who’s in power.

Now, is Trump unethical? You’d have to be naïve or a zealot to believe otherwise. His former campaign manager Paul Manafort and former personal attorney Michael Cohen are in jail.

Former campaign adviser George Papadolpoulos has already served jail time and former National Security Advisor Michael Flynn is awaiting sentencing. More than 20 women, of course, have also accused him of sexual misconduct. Conflict-of-interest scandals follow him monthly, if not weekly, the Ukraine impeachment scandal being the latest. If you’re so far to the right that you believe Trump’s clean as a whistle then you’d have to also accept that Justin Trudeau’s blackface scandal is just an unimportant example of a young man’s silliness. You can’t have your scandal cake and eat it too.

And does Trump’s massive staff turnover lead to an inconsistent, destabilized and chaotic White House? Definitely. According to the Brookings Institute, Trump’s turnover rate is “off the charts”. Of the top 65 positions in the Executive Office of the President (rather important jobs like national security advisor or chief of staff), Trump’s now churned through 51 of those 65 positions. Sixteen spots have turned over twice or more! And here’s what his cabinet turnover looks like compared to other presidencies (remember: Trump’s only in year three):

You’re fired! Trump cabinet turnover vs other presidents

Source: Brookings Institute

But is Trump really destroying the US economy and markets? Of course not. The reality is that, like it or not, he’s shaken things up, but he hasn’t blown things up. And you’d have to think that if his policies were really that damaging then, after almost three years in power, markets would have reflected this with more impact.

So, should you be worried about your investments under a Trump presidency? Of course, any presidency should be viewed cautiously. But, thus far, he’s posed far more danger to his staff’s job security than he has to markets.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.