The latest bullish meme Wall Street is passing around is that President-elect Donald Trump is the next Ronald Reagan. Bring on the big fiscal spending, this story goes. U.S. economic growth surges. Inflation picks up. This triggers a huge rip higher in the U.S. stock market. Everyone on Wall Street gets paid.
So it goes...
Let's dissect what happened to the stock market following Reagan's election. Here's Hedgeye CEO Keith McCullough in today's Early Look:
- Post Reagan’s election, the S&P 500 was down -1.6%, -0.4%, and -3.5% for November, December, January, respectively
- Post Reagan’s inauguration, the S&P 500 bounced +3.6% in February and +0.9% in March 1981, respectively
- From April 1, 1981 to the Reagan #Recession lows of July 1, 1981, the S&P 500 dropped -17.9%
To be clear, we are not suggesting stocks are headed for a 1980-style crash. What we are suggesting is that Wall Street exuberance may have gotten ahead of itself, similar to Reagan, since Trump won the election.
Consider U.S. Consumer Confidence.
The Conference Board’s November reading of 107.1, reported earlier this week, was +8.6% higher than the October reading of 98.6. That’s a new cycle and YTD high! McCullough continues with the Reagan comparison:
"As you can see in the Chart of The Day (US Consumer Confidence readings going back to the 1970s), American confidence rose into Reagan’s election then ultimately failed in 1981-1982. Trump’s “level” of confidence is actually higher than Reagan’s initially was."
The good news is that 2016 fourth quarter GDP is looking decent.
After that, the outlook looks decidedly less rosy.
