Investing

Trump's contradictions are swinging the stock market this year

Key Points
  • "We don't recall a President who has been simultaneously so bullish and bearish for stocks," analyst Ed Yardeni said of President Donald Trump and his market impact.
  • After a volatile first quarter, the market has come back nicely, as the S&P 500 has posted a nearly 8 percent gain since early April.
  • Yardeni said the markets have struggled under tariff "saber-rattling" and have thrived under the Republican tax cuts.
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Morganlander: The market doesn't care "yet" about trade tensions with China

Looking for a reason why the market's been so bumpy this year? Blame Trump. Looking for a reason why the market has held up so well this year? Blame Trump.

There's been a overriding paradox this year for investors: President Donald Trump has been both a blessing and a curse, goosing stocks through tax cuts and vexing the market with a seemingly endless stream of gut-churning headlines.

"We don't recall a President who has been simultaneously so bullish and bearish for stocks," Ed Yardeni, head of Yardeni Research, told clients in a note earlier this week. "That might explain why the S&P 500 has been zigging and zagging since the start of this year."

Actually, the market's done pretty well for itself lately.

After a wickedly volatile first quarter that saw major averages foray into correction territory, stocks have bounced back nicely. The is now up 4 percent for the year, thanks to a nearly 8 percent jump since early April, and the Dow industrials have posted a 1.8 percent increase.

Tech stocks continue to lead the market, with the Nasdaq surging 12.4 percent.

Yardeni, an economist and market strategist, said actions and policies specific to Trump can be tied to the market's ups and downs. He cited a J.P. Morgan report that looked at market behavior and determined that tariff threats by the administration had held stocks back by 4.5 percent since March, resulting in a $1.25 trillion slice in market cap.

"I guess we can blame Trump for that loss thanks to his protectionist saber-rattling. On the other hand, he deserves credit for enacting a HUGE corporate tax cut at the end of last year," Yardeni wrote.

Bull and bear statues outside Frankfurt's stock exchange in Frankfurt, Germany.
Ralph Orlowski | Reuters

Republicans pushed the largest tax cut in U.S. history through Congress in December, a $1.5 trillion reduction that Yardeni said lowered taxes by 36 percent for nonfinancial corporations in the first quarter.

"We think the market is telling us that the signal is earnings that have been supercharged by the tax cut, while the noise is protectionist saber-rattling," he added. "That's been great for cyclical and growth stocks."

In fact, Yardeni said the Federal Reserve and its interest rate hikes have rattled the market more than Trump.

The central bank enacted its second interest rate increase of 2018 on Wednesday and indicated that two more quarter-point increases are on the way before the end of the year. In addition, the Fed is tightening monetary policy further through the reduction in bond holdings on its balance sheet.

However, the market looked to be headed for a loss Friday after Trump announced tariffs on Chinese technology imports that would amount to about $50 billion.

Overall, though, Trump has fared better than most of his predecessors at this point in his term.

Earlier this month, he observed his 500th day in office with the best Dow performance of any president since George H.W. Bush in 1989-90, and sixth-best among the 20 presidents since the turn of the 20th century, according to LPL Research.

Investors remain skittish, though, and have pulled $60.3 billion out of funds that focus on U.S. stocks, according to Investment Company Institute data through April.