Donald Trump is finally officially running for President. He’s an action oriented guy and has been hinting at doing so forever, so it’s about time. He is clearly very popular having been the most Googled Republican presidential candidate in all but three states the week after announcing his plans to run. But, he’s also an incredibly polarizing figure.
There’s already tons of press that both proclaim his campaign as a joke and others that remind us not to underestimate him.
As an Apprentice alumni from 2004, I’ve had the unique opportunity of actually working with Mr. Trump. Personally, I found him to be less verbose and more reasonable off camera. On camera, though, his ability to wield the media and general public has made him, in my mind at least, one of the greatest business and media figures in our modern era.
There’s no denying his combination of business acumen and media savvy, but I have to ask, are both areas really needed to be the President of the United States? We’ve already seen one Republican candidate demonstrate he’s not able to wisely manage his own personal finances.
When politicians announce their intentions to run for office, the media typically draws attention to their personal finances. Is the candidate someone that flies around in a helicopter and hobbies as a formula one driver, or can he or she relate to the “other 99%” of us that have to think about a budget.
Americans want to know the answers to these questions because we as voters are the true stakeholders for the great nation we live in, and to some extent we are electing a new CEO. We don’t want to put someone into a corner office who could possibly put our company/country out of business.
Well here’s where I have good news for you patriots. There are three “Cs” that I want you to remember: causation, correlation and coincidence.
Market forecasters often try to correlate stock performance with the presidential cycle. This is a theory that says whenever any president comes into office, no matter Republican or Democrat, typically the stock market performs the worst during their first two years in office and much better during year three and four.
The belief behind why the presidential cycle pattern exists, is that a new administration causes the stock market to react negatively as the “new” President in office typically wants to get the unpopular fiscal legislation out of the way as soon as they get into the White House. Then, they will make more economically favorable decisions during the third and fourth year.
Theoretically, The White House tracks this pattern so that when it’s time for the next election everyone is focused on all the good they just did rather than the less popular moves that were made during their first two years in office.
Looking back to my three “Cs,” though, we need to ask, is this timing actually a correlation, causation or just plain coincidence? Does a particular set of variables like the presidential cycle actually cause the market to act a particular way, or does it act that way for an entirely different set of reasons making the relationship simply coincidental?
I believe they may correlate (meaning there’s some relationship between the two), but I don’t believe the presidential cycle causes the performance of the market in any given year. Ultimately, what really matters for the performance of the stock market is the underlying tide of the economy, demographics and companies’ ability to earn a profit. Those are the variables that cause the market to react.
Bottom line, with Trump now in the presidential race I’m confident that viewership ratings will skyrocket. I wouldn’t be surprised if the Republican debates have three times the normal number of viewers. I also wouldn’t write Trump off just yet. Considering there are twelve people currently running for the Republican seat, I believe he’ll stay in at least the top half of the pack.
However, regardless of whoever lands in the White House, I don’t believe that person will have sole responsibility for the performance of the stock market for the following four years. There are nearly infinite outside forces that move the market in either direction, and that’s true regardless if we have a reality TV star in office or not.