November 30, 2017 / 2:06 PM / 16 days ago

Breakingviews - Cox: Trump bump aside, U.S. stocks lag in 2017

MUMBAI (Reuters Breakingviews) - Donald Trump has staked his political colors to the mast of a rising stock market like no other U.S. president. He regularly argues at home and abroad that the increase in equity prices since his election in November 2016 validates his business-friendly policies and overall stewardship of the economy. What he doesn’t mention is that much of the rest of the world’s bourses actually outperformed America’s in dollar terms, which is what matters to U.S. voters.

Since Trump narrowly beat Democrat Hillary Clinton the S&P 500 index has surged by 23 percent as of late November. That supports the president’s claim, which he recently reiterated at an event with Chinese President Xi Jinping, that some $5 trillion of new wealth has been created “since the very, very well-known and now very important November 8th election.”

Treasury Secretary Steven Mnuchin has doubled down on his boss’s brag, even suggesting that a failure by Congress to pass tax cuts favored by the president would wipe out the stock market’s progress. ”There’s no question in my mind that if we don’t get it done, you’re going to see a reversal of a significant amount of these gains,” he told Politico. Embedded in the administration’s claims is the notion that its policies, most notably tax reform, have been the driving force of the market rally.

America’s corporate tax rate shouldn‘t, in theory, have any bearing on the way investors view the prospects for companies elsewhere – like, say, in Italy. Yet the FTSE MIB index of that nation’s 40 most-traded companies has done nearly twice as well as the S&P since Trump was elected. A healthy American economy helps transatlantic enterprises like Fiat Chrysler Automobiles, but the Italian rally is really more indicative of that country’s recovery along with the rebounding European region.

That also explains the 34 percent rise in Germany’s DAX 30 index. And the French equivalent, the CAC 40, surged by 29 percent by the end of November, pretty much in line with the EURO STOXX 50. Even the broader STOXX Europe 600 index nudged its American counterpart aside by a percentage point since Trump won, and even more so since he was inaugurated and officially began making – or in his case mostly unwinding – policy in January.

It’s not just a European thing. Speaking to South Korea’s National Assembly in early November, the president gloated that “the United States is going through something of a miracle” and noted the “stock market is at an all-time high.” Yet the Korea Composite Stock Price Index also trumped the S&P – and the far-narrower Dow Jones Industrial Average – with a 32 percent rally since the election and an even better 38 percent gain in the year through November.

That’s surprising given the escalating saber-rattling between Trump and North Korea’s Kim Jong-un, who keeps provoking the West with nuclear and ballistic missile tests. But it’s also of a pace with Hong Kong’s Hang Seng Index, which is up 29 percent in dollar terms since Trump won. India’s Nifty 500 index has notched a similar gain, reflecting optimism about growth and Prime Minister Narendra Modi’s economic policies – not a prospective lowering of the U.S. corporate income tax rate to 20 percent from 35 percent.

Indeed, optimism that the global economy is growing robustly, and in unison, for the first time since the financial crisis has also powered other assets besides stocks. The price of copper, which is used in construction, industrial production and other areas sensitive to economic cycles, has risen 29 percent since Trump’s victory – better than the S&P 500. Crude oil prices gained even more, around 37 percent, with the bulk of that increase occurring since the year began.  

The rising tide didn’t pull all boats up to America’s level, of course. Japan’s Topix index has been neck-and-neck with the S&P since the election, though it gained 22 percent so far this year, compared to a 17 percent bounce for its American cousin. Canadian stocks rose a respectable, if lagging, 13 percent. And the FTSE 100 index rose only 17 percent after the November 8 election, though perhaps not a disaster given the economic and political ructions the country faces as it divorces from the European Union.

Russia’s MICEX index, with a 19 percent bump, trailed the S&P and other markets since last November. That’s puzzling given the FBI’s contention that Moscow meddled in the election that took Trump to the White House. Then again, it has given nearly all of that up since the inauguration and subsequent investigations into the Trump campaign’s ties to Russia. Only one other major asset has fared worse: the U.S. dollar is down 8 percent against a basket of major currencies. So much for the Trump bump.  

Breakingviews

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