Letter: Dow credit
Lately, there have been several letters comparing gains in the Dow Jones Industrial average (DJIA) during the Obama and Trump presidencies. Without context, the numbers tell only part of the story.
When President Obama took office, the stock market was at a multi-year nadir related to the burgeoning financial crisis. The Federal Reserve – an independent agency – took unprecedented action and set interest rates to zero percent – so called quantitative easing (QE). QE is acknowledged to have stemmed the financial crisis. One effect of QE was that affluent investors transferred monies from fixed income assets to stocks, stimulating stock prices. Concurrently, many companies downsized to reduce costs, which increased earnings per share and stock valuations. The rise in stocks benefitted predominantly affluent individuals. Many ordinary workers were casualties - manifest as layoffs.
The DJIA rise under President Trump has had a much different context. There were strong gains starting immediately after his (surprise) election, presumably due to anticipated tax and regulatory relief. The economy is growing and adding jobs at a faster pace than in recent memory. Hopefully, the promising economic environment will benefit those who lost out after the financial crisis. When we look back post-Trump for comparison to other presidencies, we should not focus exclusively on the DJIA, but instead on a measure of economic benefit that includes both the affluent and those whose welfare is not tied to the DJIA.
John Acquavella, Ph.D.