Much hated Trump in the darling of the market

Never in the history of the United States has there been a president in recent times who has faced so much criticism from inside and outside the country as Donald Trump. Perhaps not even the war-mongers Ronald Reagan and George Bush have faced so much criticism and ridicule. Trump faces media scrutiny and official opposition from within his own country. The ruler of the country, the world’s largest economic power, is portrayed as hated. Even so, Trump is still a favourite of the stock market. Because Trump has done what the stock market likes during the last four years of his administration.

 

The stock market plummeted during the re-election of former President Barack Obama. At the same time, the market wants Trump to return to power. This is because the Democratic Party leader will not adopt a pro-market approach like Trump.

 

Trump introduced corporate tax cuts to combat the recession. Corporate tax cuts in the US have been reduced from 25 per cent to 15 per cent. In this way, the surplus money received by the companies returned to the market in many ways. As it paved the way for companies to increase their capital expenditure, it led to the expansion of businesses and a significant increase in employment. The U.S. recorded the lowest unemployment rate in 50 years in September last year. All of this led to the US stock market soaring to an all-time high during the Trump administration. US stock indices Dow Jones and Nasdaq hit all-time highs last February. The market fell sharply in March following concerns created by COVID-19, but bounced back and surpassed February’s record high last month.

 

Before COVID-19 shook the world, there was no doubt that Trump had the popularity to win another election. But the way the pandemic was handled has had a significant impact on Trump’s popular support. Criticism is strong that Trump’s unwillingness to impose a lock-down at a time when the increase in the number of COVID patients in the US is needed.

 

All the achievements of the Trump administration were washed away after the arrival of the viral infection. Unemployment rose to an all-time high of 20 per cent in April. The US GDP contracted sharply in the April-June quarter. Protests following the assassination of George Floyd, a black man in the United States, have also led to a significant decline in Trump’s popular support. Trump’s provocative remarks against protesters have fueled the protests.

 

At the same time, the measures taken by the Trump administration have helped bring down the unemployment rate significantly by one month. The unemployment rate, which was 20 per cent in April, fell in the following months. The unemployment rate in August was 8.4 per cent. Experts point out that this is an inflated figure and the actual rate could be as high as 11 per cent. However, it is clear that progress has been made since the April situation. The reason for this change is the provision that loans given to companies will be written off if used for payroll and job creation. The stock market expects the economy to return to normal if Trump continues.

 

If at all Democratic leader Joe Biden comes to power, there will be a fundamental change in policies, including taxes. Democrats have the opposite attitude to Trump’s policy of cutting corporate taxes. They follow a policy of imposing higher taxes on the super-rich. Naturally the stock market does not like this policy. Even corporate leaders, such as Warren Buffett, Bill Gates and Mark Zuckerberg, have expressed support for the policy, but for the stock market, the tax policy is to increase corporate earnings. Therefore, if Joe Biden wins, the stock market is likely to face a revision.

 

The stimulus package announced by Trump to deal with the COVID-19 crisis has created huge funding in the market. This factor is behind the jump, regardless of the fundamentals of the stock market. At the same time, it is to be expected that the uncertainty surrounding the US presidential election in October will be reflected in the market. The market cannot go on for long depending on the liquidity factor alone. The market has to face the basic realities. The only question is how much longer will it take.

 

Trump may have resorted to various tactics to retain power. Another stimulus package is likely to be announced. If that happens, the market may jump. But pre-election uncertainty is inevitable. It can be expected before November.