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Inauguration Day: A Turning Point For Markets?

(Kitco News) - Jan. 20 – A new era begins in Washington D.C. today as President Donald Trump is sworn into office. The first 100 days will be closely watched and may well set the tone for financial markets in the months to come. The stock market has already priced in a great deal of expectations and now investors are waiting to see if the new Republican administration can deliver.

A Look Back

While the historians will take years to ultimately assess the outgoing President's contributions to America, the actions on Wall Street are evident now.

Sam Stovall, chief investment strategist at CFRA Research in New York compiled some fascinating market statistics:

  • The S&P 500 gained a cumulative 148 percent during President Obama's eight calendar years in office (12/31/2008-12/31/2016). That ranks him number two of six presidents who served two complete terms in office, behind President Clinton’s 203 percent and ahead of President Eisenhower’s 119 percent rise.

  • President Obama was the fourth Democratic president to avoid a recession while in office since WWII, along with Kennedy, Johnson and Clinton. Every Republican president since 1900 experienced a recession in their first term in office.

  • President Obama presided over the third longest economic expansion since 1900, which is more than twice as long as the average.

  • S&P 500 earnings per share are expected to have posted a 26.8% compound annual growth rate (CAGR) under his watch, the most of any president, vs. 12.8% for President Clinton and 12.6% for Truman. President Bush-41’s 5.3% decline and Bush-43’s 14.1% slump were the worst.

  • The S&P 500 fell 19.4% in price in 2011, barely missing a new bear market as a result of worries that the E.U. would unwind and with the U.S. losing its AAA credit rating.

  • Since WWII, the S&P 500 typically rose during the third year of the presidential cycle, due to the introduction of “reelection-enhancing” economic stimulus. The S&P 500 fell in both 2011 and 2015 as a result of the absence of this sort of stimulative legislation.

  • The FOMC started a rate-tightening program in December, 2015, nearly 10 years after the last fed funds rate increase, likely putting an end to the 35+ year bull market in bonds, Stovall says.

A Look Ahead
A post-election market surge propelled the S&P 500 to new all-time highs as investors priced in the pro-growth stimulus expectations.

John Traynor, chief investment officer (CIO) of People’s United Wealth Management in Bridgeport, CT believes a rising TIDE may interfere with the current Trump Market Rally. Here's what that means.

Traynor defines the TIDE as:

T = Trade Tensions
I = Interest Rates
D = Dollar Rising
E = Energy Prices

Trade tensions:

“Trade is an area where the Trump ’bluster’ has had the highest profile and where we believe some of the discussed renegotiations, restrictions and reneging will have a negative impact on the economy. While we certainly believe in fair and open trade accords, it is critical to remember the post WW II increase in global trade has led to increased global growth and individual productivity. Make no mistake about it, the U.S. economy will be negatively impacted by trade restrictions," Traynor says.

Interest Rates: “The eclipsing of the era of ’free money’ as reflected in the incredibly low interest rates seen over the last eight years will impact industries benefitting the most from low rates, such as home building. Sustained low rates allowed borrowers to refinance and capture billions in additional cash flow that was in turn moved back in to the real economy," Traynor says.

Dollar rising: “A rising dollar makes U.S. exports more expensive and imports more attractive. In our interconnected world, a higher dollar will impact trade flows and serve to slow the economy," Traynor says.

Energy prices: “Whether the production cutbacks planned by OPEC and non-OPEC countries will hold is less than certain, but they are undoubtedly a step in the direction of higher prices. Every penny increase in the price of a gallon of gasoline has the effect of acting like a tax increase of one billion dollars over an entire year for US consumers. Higher prices will also lead to increased drilling in the oil patch which may offset some of the drag higher prices will have on consumers," Traynor says.

Rain: A Bad Omen?

Rain is forecast in the nation's Capital today. Analysts at LPL Research took a break from the seriousness to ask if the weather in Washington D.C. on inauguration day has a relationship to S&P 500 returns.

"To be sure, the weather on any given day is of no consequence to long-term returns for markets, but patterns do emerge at times, even if the correlations are just coincidence. Going back to the 1949 (the second inauguration of Harry Truman, and also the earliest inauguration day where weather data were available), the presence of precipitation appears to be the most impactful data point. As the chart below shows, rain (or snow) on inauguration day has historically been a bad omen for the stock market," according to an LPL research note.

Inauguration Day: A Turning Point For Markets?

The Gold Market

Gazing into the crystal ball for 2017 and beyond the gold market will see competing forces and influences. Here are just a few.

Gold bullish factors:

  • President Trump is already jawboning the U.S. dollar down – earlier this week he said the currency was "too strong." Again, breaking precedence, sitting Presidents rarely comment on the level on the U.S. dollar let alone support weaker levels.

  • Rising Inflation Ahead – a number of economists are warning that higher inflation is coming, in part due to President's Trump's pro-growth policies.

  • Increased Safe-Haven Demand – Geopolitical uncertainty could increase in the months ahead in the wake of President's Trump's weak support for NATO. A changing in the global order may be starting.

  • The current stock market cycle is aging and vulnerable to a correction or cycle turn.

Gold bearish factors:

  • U.S. interest rates are expected to continue to rise.

What are your predictions? Let us know at mailto:mediafeedback@kitco.com

By Kira Brecht, Kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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