Donald Trump holds a “narrow advantage” over any future rival in the 2020 election, according to economists at Goldman Sachs, but it has less to do with the stock market than the president’s Twitter account might indicate.
“In our view, the advantage of first-term incumbency and the relatively strong economic performance ahead of the presidential election suggest that President Trump is more likely to win a second term than the eventual Democratic candidate is to defeat him,” wrote economists Alec Phillips and Blake Taylor in a weekend note.
They noted that stands in contrast with prediction markets, which show a 56% probability of the eventual Democratic nominee defeating Trump next year. At the same time, surveys indicate Wall Street insiders expect a Trump re-election victory based on economic performance.
The relationship between economic performance and presidential elections is well-trod ground, with incumbents generally seen enjoying an electoral tailwind if the economy is perceived as doing well in the run-up to election day and challengers benefiting from economic weakness. Indeed, the phrase, “It’s the economy, stupid,” was made famous as Bill Clinton’s internal campaign mantra in 1992.
The Goldman analysis noted, however, that, in keeping with past findings, the performance of the stock market and other “market-based variables,” such as oil prices, are less important than other factors, including income, employment and consumption (see chart below).
Trump, since his election victory in November 2016, has unabashedly claimed credit for stock market gains, including a string of records through last fall, as equities built on a bull market that began in March 2009. Past presidents have been more reluctant to tie market performance directly to policy actions, commentators have noted, likely due to fears they would take the blame for any subsequent declines.
As the market stumbled in the