"The S&P Is Up 21% Since Trump's Election" And Other Market Anniversary Observations

November 8 will mark the one year anniversary of one of the biggest political shocks in US history: the election of Donald Trump. Since that improbable victory, which so many experts had said would lead to a market crash, the S&P 500 has soared by 21% according to Goldman which calculates that the Trump rally so far ranks as the fourth-best 12-month gain following a presidential election since 1936, trailing only Bill Clinton (1996, 32%), John F. Kennedy (1960, 29%), and George H.W. Bush (1988, 23%).

Of all sectors, the biggest beneficiaries from Trump's election were Financials and Information Technology, which have powered the market with returns of 37% and 39%, respectively. Given its large weighting, Tech contributed 37% of the index gain. Alongside the relentless stretch of all time highs in the S&P, the rise in the index has also been characterized by the lowest volatility in 50 years and has seen just one month in which it did not record a gain (March, -0.04%) although on a total return basis, the S&P has been up every single month since the election, and as Deutsche Bank observed last wek, the S&P has seen a positive total return for all 10 months so far this year, the first time on record. Additionally, October marked the 12th positive month in succession, which equals the record set in 1949-1950 and 1935-1936. This means the S&P has not had a single month of negative total returns since Trump was elected almost exactly one year ago.

Courtesy of Goldman's Kostin, here are some other observations:

  • Trump’s election also rippled through the performance of global equity markets. Following allegations of Russian interference in the US presidential election, equity investors initially appeared to believe Mr. Trump would herald a thawing of relations between the two countries. The MICEX index surged by 13% between the US election and the end of 2016 while the S&P 500 rose by just 5%. However, MICEX then plunged by 16% during 1H 2017 before rebounding during the last three months to bring the post-election local currency return to 5% (15% in USD terms). Most foreign equity markets have benefitted from an upswing in global growth. Among major markets, MSCI China has shined, rising 40% in the last year.
  • Perhaps the most notable of the many so-called “Trump trades” has been the rise of companies with the highest small and medium business exposure. The median stock in this basket generates 71% of its sales from small-and-mid-sized business customers. Small business owners have been thrilled at the prospect of deregulation under the Trump administration. Following the election, the NFIB Small Business Optimism Index leaped to the highest level in more than 12 years. The share prices of firms deriving revenues from small businesses have rallied by 38% since the election while the Russell 2000 small-cap index has matched the performance of large caps (see Exhibit 2).

  • The performance of high tax-rate stocks has been more complicated. The sector-neutral High Tax basket contains 50 S&P 500 stocks with the highest 10-year median effective tax rates (38% compared with 30% for the median S&P 500 stock). These are the firms most likely to experience positive EPS estimate revisions if corporate tax rates are cut. The basket jumped by 5% immediately following the election, but the relative performance has more than reversed since then, falling by 9% (Exhibit 4).
  • The High Tax basket’s performance this year has been influenced by exposures other than tax sentiment, notably the US dollar. Because one method that US firms use to reduce their tax burdens is keeping earnings overseas, companies with the highest tax rates also tend to have the highest domestic business exposure. The median High Tax stock generates 84% of sales domestically vs. 73% for the median S&P 500 firm. A weaker USD benefits firms with high foreign sales, and the 6% YTD decline in the trade-weighted USD explains much of the tax basket’s underperformance. Nonetheless, the basket outperformed by 35 bp on Thursday when House Republicans released the details of their tax plan.

What happens next, now that the S&P is just shy of 2,600 - Goldman year end price target for 2019 - depends largely on the fate of the Republican tax plan. According to Kostin, "the Republican tax plan would boost corporate earnings but has a long way to go before becoming legislation."

" The plan would reduce the federal statutory corporate tax rate to 20% from 35%, below the S&P 500 median effective rate of 27%. However, other “pay-fors” would significantly offset the potential boost to earnings – and hit to government revenues – from a lower rate. These include the adoption of a territorial tax system that would effectively place a 10% tax on high profit foreign subsidiaries as well as a tax on some payments to foreign affiliates and a cap on interest deductibility at 30% of EBITDA. This last change would likely have a limited effect on S&P 500 EPS because just three companies accounting for 0.1% of market cap have consensus 2018 consolidated interest expense above that threshold. However, the impact could be greater taking into account intracompany loans that firms deduct against US income. The plan also proposes full equipment expensing for five years, supporting our preference for firms investing for growth rather than buybacks or dividends."

 

The GOP tax plan also includes a one-time tax on previously untaxed foreign profits at higher rates than those in prior proposals. The deemed repatriation would place a 12% tax on overseas cash and a 5% tax on other permanently reinvested foreign earnings (vs. 8.75% and 3.5% in the prior House plan). S&P 500 firms hold $2.5 trillion of untaxed foreign earnings, including $920 billion in cash. Under the newly proposed tax rates, firms would pay a $190 bn tax bill and access $730 bn of remaining overseas cash.

In a nutshell, Goldman places a 65% likelihood on tax reform in Q1 2018, but believes further changes to the plan are likely. Because it will be difficult to find base broadening measures that can pass the House and Senate, Goldman also expects the final corporate tax rate may be 25%.  In summary, the bank estimates that a modified plan with a 25% corporate tax rate could lift its S&P forecast by 7% next year to $148 (15% growth) from $139 (7%). For now however, and with less than 2 months left, Goldman expects the S&P 500 will end 2017 at 2400 (-7.0%).

Comments

Dumpster Elite Sat, 11/04/2017 - 10:28 Permalink

Just goes to show how the "experts" are really just clueless assholes. Anyone who describes THEMSELVES as an "expert" on anything, is just a self-righteous arrogant asshole. If I was ever invited on a news program, and described as an "expert", I would immediately correct them by saying that I am just someone that works in that field, and this is my personal opinion, but please don't call me an "expert".

small axe Sat, 11/04/2017 - 10:31 Permalink

Fed's wealth transfer machine is shifting into high gear.Too bad about the peasants. Our corporate media will need to turn up the volume of its paeans to the benefits of financialization and tinkle-down economics or the serfs will get restless. 

Byrond Sat, 11/04/2017 - 10:47 Permalink

A real House of Cards. Will end any day now, and fall apart instantly. The tweets are going to get real old real quick unless the real American people get some meat and potatoes real soon.

whatswhat1@yahoo.com Sat, 11/04/2017 - 10:58 Permalink

Ivandjiiski's history is a little odd, since he moved to the United States from Bulgaria to study at the University of Pennsylvania in order to pursue molecular biology (then go on to med school). Instead, he took a job as a junior investment banker at Jefferies & Company in Los Angeles, and continued in finance. It is interesting to note that in 2005, while working for Miller Buckfire, he was barred from working in the broker-dealer business due to insider trading amounting to $780.Dan denies that he founded the site, but he claims no other profession and to be the primary author of a number of the articles. He claims he writes with a staff of up to 40 other writers that work for Zero Hedge. However, secrecy is paramount in case They find out."Creative" journalism is apparently not out of place in the Ivandjiiski family either. His father Krassimir Ivandjiiski runs a cranky tabloid called Bulgaria Confidential, which received brief notoriety in the US after publishing a story about massive drug trafficking and corruption in Montana, picked up by an independent US rag Free Speech Newspaper.[16] There, Krassimir and Free Speech claimed that the governor was an alcoholic drug abuser that helped turn his state into one of the pits of drug trafficking in the US.[17] The governor fired off complaints about slander, while many wondered why a state with barely a million people[18] and only a small handful of highways, hundreds of miles from any major population center, could have more drug runners than the West Coast.[19]A telling article was written in 2016 about the blog's operations after a falling out between Colin Lokey and the forty two other authors at the blog.[20] The article included private chat logs between the authors emphasizing punishing 24/7 deadlines and an overwhelming profit motive to support the authors' extravagant lifestyles, which conflicted with the image of their anti-establishment, anti-capitalist icon Tyler Durden. To quote Lokey, "[t]wo guys who live a lifestyle you only dream of are pretending to speak for you." Lokey's resignation was also rather telling about the site's bias in heavily cheerleading for authoritarian, autocratic governments with terrible civil rights and human rights records and against freer, democratic societies:

"I can’t be a 24-hour cheerleader for Hezbollah, Moscow, Tehran, Beijing, and Trump anymore. It’ s wrong. Period. I know it gets you views now, but it will kill your brand over the long run," Lokey texted Ivandjiiski. "This isn’t a revolution. It’s a joke."
John Law Lives Sat, 11/04/2017 - 11:51 Permalink

This is not a "Trump Rally".  The "markets" have been rallying hard since their intraday lows of February 11, 2016.  Calling this a "Trump Rally" is every bit as ad hoc as claiming "bad news is good" or "good news is good" etc. on a daily basis.  The "markets" don't need a daily reason to rally other than the combination of artificially low interest rates, corporate share repurchases, ETF purchases, and central bank intervention of various kinds etc.  One day the shiteshow known as the "markets" will reverse course, and a load of BTFDers are going to get smashed into the asphalt whilst trying to pick up pennies in front of the steam roller.Fed_FUBAR

Delta New J Sat, 11/04/2017 - 11:51 Permalink

Not to bring up a sore point but if we all thnk back to last year every article on Zerohedge was on how the markets would crash if Trump won.  As far as I can tell there was one analysts on Zerohedge who got the rally right and continues to get it right.  Zerohedge rocks. 

Consuelo Sat, 11/04/2017 - 11:58 Permalink

  Looking at this from a slightly different (and sober) perspective:Think for a moment - with all of what you know is going on socio-politically right now (and what the intelligence agency-controlled media likes to fan) could likely happen when this economy takes a turn and unemployment begins to rise precipitously?Donald Trump took his (highly valid) campaign arguments regarding Obama, the Fed, the economic numbers, the market, etc., and essentially shit-canned them for the lure of taking credit for a rising S&P-cum-enrichment of a small percentage of high net-worth entities.Circling back, when this economy does finally turn - and turn hard, what do you think the ramifications are going to look like?  Taken a step further, if you reside in an upper-middle class area and happen to be cut of the White loaf, what do you think this is going to mean for You...?  

supernintendos… Sat, 11/04/2017 - 13:52 Permalink

I'll piggy back on this article, Courtesy of DR. Will PPT continue to save the market? Is it still a free market?We have seen the most extraordinary lack of volatility… since Trump has been in office. And it’s interesting because the night he was elected you may recall that the futures came down about 400 or 600 points. You may recall  by the next morning they were even again. To me, watching PPT for the last 10 years. I was pretty certain that that's what happened. PPT mounts the white horse and buys the market whenever it thinks stocks might go to pieces. Its massive buying stabilizes markets. So goes the theory. But the PPT slinks in shadow… working unseen levers… yanking invisible strings.No one’s ever nabbed it in flagrante delicto.post-election:Legendary stock trader Carl Icahn, a close friend of Donald Trump, left the Trump victory party in the middle of the night and ordered his traders to buy $1 billion of stocks even as the stock index futures were plunging.Then the computers sniffed out Icahn and went to work. Analyst  describes the dynamic:The computers and ETFs are what drive price movement now, and those things are nothing more than market players trying to find an advantage.Why are markets so resilient? These political events are being managed by central banks to ensure the fallout doesn’t trigger sell-offs or sustained volatility spikes.

bunkers Sat, 11/04/2017 - 15:34 Permalink

On the Kevin Galalae Channel, on YouTube, Kevin says executives leaders, like Trump, are responsible for Chemtrails. If correct, that means that Trump is deciding to continue Chemtrails. It is clear to me when I go for medical care that the mainstream medical establishment wants Boomers dead. I see how they push, in subtle ways, to harm me. If you're old, be very careful what you say.

J J Pettigrew Sat, 11/04/2017 - 17:06 Permalink

Is Pau Krugman still short?Let me see, 9 years of interest rate subsidies by the Fed....and then a tax cut for the corporations....its like Christmans for these guys...all the time...How about no corporate tax cut....and a REAL BIG ONE FOR THE PEOPLE?