A wise person once said, “The days are long and the years are short”; this phrase becomes truer as I get older and have more kids.
This week marks a year since Trump was elected President. Around 3 am the night of the election, I slept for about 2 hours. I was up all night because I watched the futures limit down by 5.0% and was thinking about the reactions our clients will have the following morning. Full disclosure, we did not advise clients to sell their stock holdings and move to cash or bonds prior to the election.
Through his Twitter account, Trump has touted the success of the US stock market which has recorded its 59th record high since he was elected President. Yes, markets are at an all-time high, but what is more impressive is that it has done so with record low realized volatility.
Year over year, the Sharpe ratio, which measures the ratio of annualized return to volatility is around 4.96 for the S&P 500 Index (SPX). The Sharpe ratio for US Aggregate Bonds is basically 0. The higher the number the better risk-adjusted return. The historical Sharpe ratio for the SPX is around .40. Furthermore, there has been no pullback greater than 3% since Trump was elected President.
Twitter was around in 2008, but President Obama would have had nothing positive to tweet about as he took office. President Obama didn’t see his first record high until March 14, 2013, when the S&P 500 crossed the previous record high that was recorded under President Bush on October 11, 2007. Obama became President during one of the worst drawdowns in US market history. The S&P 500 was under water for 1095 trading days or approximately 5 ½ years.
Invest $100,000 in SPDR S&P 500 ETF (SPY) at the closing the price the day before 2016 US Election and the day before the 2008 US Election. The scenario will be price return only, assumes no dividends received.
The chart below illustrates the scenario. During Obama 1st 250 days scenario (orange line), you would have been down 10% by that Friday. If you checked your investment every day (not advisable), the lowest amount you would have had in your hypothetical portfolio during Obama’s 1st 250 days was $67,832 before recovering. The blue line represents your investment during Trumps first 250 days. Most people were predicting the outcome for the markets would have looked like the orange line if Trump was elected. Go figure.
The chart below illustrates the drawdown in the S&P 500 during the first 250 days of trading for both Trump and Obama. Green shade for Obama, black shade for Trump.
The contrast is striking. You can barely see the area for Trump’s 1st Year. Obama’s 1st Year shows the extreme selloff, followed by an unbelievable turnaround. On March 9, 2009 (the day the market bottomed) your investment would have been down 32%. Again, this chart is showing the drawdowns associated with the S&P 500 index over the time shown.
How did you feel watching your investments during the first 250 days under Obama? Most likely sick to your stomach. How do you feel now that stocks are up ~20% over the past year with Trump? Most likely sick to your stomach because we don’t know when the “winning” will end and we have been conditioned to think that the markets will rise, crash, rise, crash. Who isn’t waiting for a pullback these days?
These uneasy feelings have nothing to do with who is President. We always feel this way. During the good times, we get that uneasy feeling because we don’t want to give back our gains. During the bad times, we are frozen with fear because we don’t know when the good times will come back.
Presidents will come and go, but our emotions are here to stay.
If we are handing out credit to US Presidents for stock market gains, history will remember the unbelievable turnaround that was the stock market during the Obama years. History will also look at inauguration dates – not election dates. And to that record, Obama will be tough to beat. To match Obama’s stock market performance, Trump needs the S&P 500 to reach 6,407 to match Obama’s stock market performance. On a total return (including dividends) basis, it needs to hit 7,608. Currently, the S&P 500 is right below 2,600.