Just prior to the election of Donald Trump as US President, there were many media analysts and those in political leadership roles that questioned his ability to function in the role. But the fact many of these ‘analysts’ lack any formal training that may qualify the characterization is one that has become readily apparent now that the stock market has been able to post a full-year rally under the guidance of his administration.
In the US stock market, there are three central benchmarks that are typically used to gauge the strength or weakness of the private corporate sector. There are many reasons for these, as each stock benchmark tends to cover specific industries within the economy. The technology space is most closely associated with the NASDAQ composite stock market index, which famously encountered a bubble-like event in 1999. This area includes biotech stocks and tends to be one of the more volatile examples of a global stock benchmark. But it is also characterized by strong trending behavior in the open market.
On the ‘factory production’ side of things, market analysts will usually focus on the Dow Jones Industrial Average. This index tends to be smaller in scope, dealing with only 30 individual stocks that can be greatly impacted by oil prices. But these stocks are often in the key sector of manufacturing, which is often a good indicator of strength or weakness in a national economy. In most cases, it is difficult for a country to avoid recessionary conditions if there is weakness present in the manufacturing sector.
The largest US stock market benchmark is the S&P 500, which is a collection of 500 large (often referred to as ‘large cap’) consumer companies. For many investors, this is the most important stock benchmark because it involves a much larger sample of the corporate world in its averages. The reality is that neither of these metrics is better than any other but they do give markets different information in terms of which industries are succeeding and which are failing.
In the case of Donald Trump’s Presidential administration, the stock market verdict has been relatively clear. Over the last year, the S&P 500 has posted returns of 24% while the Dow and NASDAQ have gained 32% over the period. The positive momentum here has pushed the US stock market to new record highs as more people move away from asset strategies like investing in gold for retirement. These trends could continue as long as GDP forecasts remain above 4% on an annualized basis.