Raising numbers, USA. Moving America from Buy to Strong Buy. Raising price target, Trump, from 306 to 538. Those thoughts kept running through my mind as I watched last night's State of the Union. The whole first half of the speech sounded like a brokerage firm's opinion not on a stock but on a country. Of course if the country catches an upgrade as President Trump's speech amounted to, then it's natural for him to believe he can take every state in the union, yep all 538 electoral college votes.
In fact a key tent of Trump's State of the Union address was the economy, more specifically, the stock market. "Since my election U.S. stock markets have soared 70% adding more than $12 trillion to our nation's wealth, transcending anything anyone believed was possible. This is a record," he continued, "it is something that every country is looking up to. They Admire. Consumer confidence has just reached amazing new highs. All of those million of people with 401ks and pensions are doing far better than they have ever done before, with increases of 60, 70, 80, 90 and 100 percent and even more. "
I think the Democratic response to the State of the Union was equally cogent. Michigan Governor Gretchen Whitmer said, "Doesn't matter what the president says about the stock market. What matters is that millions of people struggle to get by or don't have enough money at the end of the month after paying for transportation, student loans or prescription drugs"
Sadly despite the incredible job gains we have experienced - best in 50 years - the governor is right. It was that inequality that President Obama tried to erase directly. President Trump has scrapped regulations, cut taxes and juiced the stock market with the hopes those big issues will be addressed. However, Mad Money isn't about mad politics, or mad government programs, it's about your money.
And hate him or like him, the stock market is an incredibly important barometer to President Trump, to the point where it really did sound that he was pounding the table to buy the stock of the United States of America because of the dividends it pays, including the one that allows Trump to take the sweep and continue to live at the White House. Every year I listen to the State of the Union looking for initiatives that move stocks. Sometimes it's about drugs or oil. This one had all of those and they were posed in a way that, again, made you want to buy stock in America, which corresponds to the S&P 500 which I think is a palpable reason why the overall averages were so strong today. For the first time I can ever recall, the president truly was pounding the table to buy, and given the $12 trillion in stock market creation. Trump has a pretty good track record.
Now let's go a step further. The orientation of the two parties could not be further apart right now. The president believes free enterprise solves many societal ills. None of the Democrat seem to believe in that. They all, to a varying degree, want to re-regulate and, in some cases, get rid of the health insurance and have a single payor system for all.
Yes, yesterday's Iowa caucus fiasco hurt the Dems but perhaps the biggest takeaway from the primary was that Mayor Pete beat Warren and Sanders, and Buttigieg is close to the status quo when it comes to health care issues. He's also the least antagonistic to the bank stocks. Until this caucus, it was entirely the case of one party overweighting the wealthy who tend to own stocks and the other party putting a strong sell on the wealthy. But with neither Mayor Pete nor Trump running against the ruling class you have a chance for an unbridled rally like we have. If Buttigieg gets the Democratic nomination you have two people who want businesses to reward shareholders as much as possible while Warren and Sanders would prefer to redistribute that shareholder wealth because, in truth many people cannot afford to own stocks or have a pension of any sort.
Now of course, that's not the only thing that spiked stocks. Many of the oils rallied because of talk about OPEC cutting production. When the oils rally that takes up the industrials because oil going higher signals economic health. Hence the big gain in the Dow.
There was nothing new and terrible about the coronavirus and we even got a note from Cowen, the brokerage house, saying that there may be a slowdown in the rate of new corona contractors. The stock futures were looking down after 10 people on a Carnival Cruise (CCL) trip tested positive for the scourge causing a quarantine on thousands of passengers.
But at 3:30 this morning we got news - unsubstantiated news - of a possible breakthrough from a U.K. drug company. That occurred at the same time as we learned about still more stimulus from the Chinese government in terms of tax cuts and the like.
But there's no kidding that politics are merging with stocks in a way that I can't recall. These two headlines, "Trump touts strong economy" from the Washington Post, and "Trump Touts Economic Gains in Address" in the New York Times, really say it all about the campaign, because a key manifestation of the economy is the stock market as viewed by the averages.
Now unlike the president, I look at stocks far more as a creature of what management does, what sector they are in, what dividend and growth rate they have and what's the Fed fund and longer term interest rates. Is the Fed against you or on your side, as is the case. Sure, the president matters. And yes, the elixir for higher stock prices is a combination of lower interest rates, low inflation and strong job creation, only the latter of which can be truly laid, in part, at the feet of the president.
But it's the intertwining of his fortunes with the stock market that allows investors to overlook all sorts of concerns that would normally have been paramount. You don't see anything from this president that would impede the ability of wealthy people to get more wealthy. You don't see anything that would upset existing health care, even as he is calling for drug price transparency. You don't see anything that calls for higher taxes, Robin Hood style, that would allow the impoverished to pay nothing or get a guaranteed income as even President Nixon considered.
Instead you see rapacious capitalism at its best relatively unimpeded by the new front runner of the Democratic party.
I believe that President Trump allows industries to feel safe, industries like banking, like health insurance, like oil and gas, like pharmaceuticals, and therefore allows them to enrich their shareholders. It's a most bountiful time for shareholders, hence they don't seem to be motivated to sell whether the coronavirus rages and may even be getting worse, whether brick and mortar retail struggles, or whether individuals can't handle transportation costs, drugs or student debt. Alas, it's pretty much of a gimme because, after all, those people don't own any stock to sell anyway.
