This week in Bidenomics: Dow 40,000?
President Biden did something out of character recently: He bragged about the stock market.
His timing was good. On Feb. 10, Biden tweeted, “The stock market going strong is a sign of confidence in America’s economy.” Stocks have gone up even more since then, with the Dow Jones and S&P 500 indexes hitting record highs, and the Nasdaq coming close. Wall Street analysts are now anticipating the Dow Jones Industrial Average hitting 40,000 for the first time ever, which would only take another 1.8% gain.
There’s nothing special about round numbers in any stock index, except that they tend to capture public attention. Biden probably figures that’s a good thing. Voters are giving him little to no credit for an economy with low unemployment, record job creation, and growth that has held up better than most economists expected.
It’s no secret why voters remain dyspeptic: Inflation has cut into their purchasing power. Inflation is down from its 2022 peak, and likely heading back to normal, yet Biden’s approval rating remains mired near the low point of his presidency.
So Biden, clearly needing some momentum in his reelection bid, is stretching beyond his customary reach to convince voters the economy is doing well and he deserves another term. There are obvious risks to bragging about the stock market. For one, Biden fashions himself a working-class hero and ordinary Joes don’t really want to hear about how wealthy investors are racking up gains. Second, stocks can turn on a dime and wreck your narrative — as President Donald Trump learned in 2020.
Trump, while president, talked about the stock market on a weekly basis. Since it mostly went up during his first three years in office, he took credit and claimed his policies were responsible. He boasted repeatedly of stocks “smashing one record after another” and adding trillions of dollars in new wealth.
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Then came the 2020 COVID pandemic. Stocks plunged by 34% in two months, erasing most of the gains during Trump’s term. Trump clammed up about the stock market for a while. Then stocks recovered, thanks largely to massive amounts of fiscal stimulus and dramatic monetary easing by the Federal Reserve, which drove interest rates to record lows. Trump, by then, was busy defending his spotty handling of the COVID outbreak, blaming health officials for shutting down the economy — and battling COVID, himself.
Trump is bragging about the stock market once again, claiming stocks are up under Biden because investors think Trump will win the presidency again in November. That’s ridiculous, given that a hypothetical event eight months in the future almost never moves markets. Election odds could move markets in the days or weeks beforehand, as investors try to guess how the outcome will affect tax policy, government spending, and other economic issues. For now, however, what’s moving markets is corporate earnings, inflation expectations, and the likelihood of Federal Reserve interest rate cuts.
Still, Biden may figure he can’t let Trump take credit for a market boom while he stays silent. If the market holds up, Biden will soon enjoy bragging rights over Trump. Through Feb. 22 of each president’s fourth year in office, Trump holds an edge in stock market performance. The S&P 500 index is up 34% under Biden so far, while it was up 47% at the same point in Trump’s presidency.
The chart above, however, shows how stocks yo-yoed in Trump’s fourth year. If the market simply holds steady for the next couple of months, Biden will soon be able to say stocks are doing better under his watch. And why wouldn’t he? Stock gains do generate a "wealth effect" that makes a lot of people better off, including ordinary workers with retirement plans. The percentage of Americans with some level of stock ownership has hit 61%, and that has to include some of the key swing voters Biden needs in November.
By Election Day in 2020, stocks under Trump had basically recovered their COVID losses. But the total gain under Trump, 46%, was roughly the same as it had been nine months earlier, before COVID struck. Much more important at the time was the pandemic itself, since vaccines still weren’t available and many restrictions were still in place.
Nobody knows what the stock market will do in the nine months until Election Day 2024. Some analysts say stocks are overbought and due for a tumble, while others think the rally has legs. If Biden wants to take credit for gains, he should proceed cautiously, since the stock market isn’t the real economy and it can quickly reverse, anyway.
But if the Dow does hit 40,000, why not celebrate a little?
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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