Stocks powered broadly higher with the S&P 500, Dow, Nasdaq, and Russell 2000 all climbing this week. Reports of stimulus efforts in China and Germany helped ease worries about a global economic downturn and investor sentiment got a boost from impressive quarterly results from Target and Lowe’s.
Perhaps helping matters is the distinct possibility the Federal Reserve (Fed) will continue to lower interest rates into the end of this year. Additionally, President Trump floated the idea of a temporary payroll tax as a way to offset the economic slowdown. There is a precedent for this idea in that President Obama cut the 6.2% payroll tax to 4.2% to encourage consumer spending during his presidency. That relief lasted until 2013 at which point the payroll tax was reset to 6.2%.
Speaking of public policy, it seems the President got himself into somewhat of a pickle this week. A couple weeks ago the Environmental Protection Agency (EPA), at the behest of the White House, granted 31 waivers exempting refiners from the requirement to blend corn-based ethanol into gasoline. Within 48 hours the biofuel industry had delivered a detailed letter to the White House demonstrating the damage these waivers would cause. Farmers, which are seeing crop prices hit hard by a trade war with China, are struggling with the timing of this decision. This pits two conservative constituencies against one another just in time for election season. Who will win? The heartland or the oil industry?
In other news, it turns out hiring wasn’t nearly as strong in 2018 and early 2019 as the government initially reported – by about a half-million jobs. The economy had about 500,000 fewer jobs as of March 2019 than the Bureau of Labor Statistics initially calculated. That’s the largest revision since the waning stages of the Great Recession in 2009. The newly revised figures indicate the economy didn’t get a huge boost last year from the tax cuts and higher federal spending. On the flip side, this could give the Fed even greater reason to cut interest rates in September. The average 223,000 monthly increase in jobs in 2018, could be trimmed to around 185,000 economists estimate.
In company news, you might have noticed I don’t often talk about Tesla. While this company’s products are viewed by many as the best on the market, the cult of personality around it’s CEO makes it hard to speak about this company objectively without drawing ire. Well, this week Walmart announced it is suing Tesla after the latter’s solar panels atop seven of the retailer’s stores caught fire. Previously, we only knew about its cars catching fire. The lawsuit alleges breach of contract, gross negligence, and failure to live up to industry standards. The company wants Tesla to remove solar panels from more than 240 stores and pay damages related to the fires. If you’re in the market, I know where you can get a “hot” deal on solar panels.
To wrap up this week, let’s talk about returns under the various presidents. Presidents almost always take credit when the economy is going strong and the stock market goes up. In reality the president has limited ability to affect the stock market, although greater ability to affect the economy through policy. During President Trump’s presidency, the S&P 500 has gained 29% from inauguration day through August 13th. How does that stack up against other modern presidencies? Ronald Reagan +23%, George H.W. Bush +36%, Bill Clinton +29%, George W. Bush -26%, and Barack Obama +46%. While these numbers are mostly meaningless, picture each president sitting in his library, cocktail in hand, thinking about how well he did for the stock market, economy, and prosperity of the country. Well, all except for George W. Bush who endured the dotcom bust and the 9/11 terror attacks. He’s probably just happy to forget about the difficulties during his presidency. Now you know.
Bruce Mason, MBA