Mainstream media have made a lot of fuss about President Trump’s approval ratings. Admittedly, he hasn’t polled as well as did past presidents during their first years in office. After winning the presidency in a hard-fought campaign, it was inevitable Trump would continue to face opposition once in the Oval Office.
According to Gallup’s daily approval rating poll, Trump started with an even slate, with 45% of Americans approving of him and 45% disapproving. The gap got bigger throughout 2017, with his disapproval rating peaking at 62% on October 29.
Since then, Trump’s approval ratings have recovered somewhat. An aggregate approval rating put together by 538 found that 38.8% of Americans currently approve, against 56.2% who disapprove.
President Trump will probably never be particularly popular—a large group of Americans have made up their minds to oppose him no matter.
However, recovering polling numbers are a sign that Trump will have more breathing room to govern as 2018 moves along.
Why is that important? With more public support—even if it’s only slightly more—the president will be able to implement his pro-business agenda more fully. That’s good news for stock market investors.
Presidential Approval Ratings and Stock Market Performance
Academic research indicates there’s a positive correlation between stock market performance and presidential approval ratings. When the stock market gains the value, the president’s approval rating tends to go up. When the stock market drops, so do perceptions of the president.
What less obvious, however, is what causes what. Does a stronger stock market cause the public to feel better about the person occupying the oval office? Or does the presence of a popular president lead to a general increase in business confidence, which boosts the stock market? What if both happen at the same time?
A 2013 paper by Christine Fauvelle-Aymar of the University of Tours and Mary Stegmaier of the University of Missouri focuses on the first point: that presidential approval ratings tend to follow stock market performance.
Here’s a short excerpt from their paper:
A thriving market signals vibrancy in the business community and increased wealth for stockholders, while a slumping market indicates general economic malaise and declining levels of personal wealth. Second, responsibility for stock performance can be assigned to the President.
Since stock returns are affected by economic conditions, and the government has policy instruments to steer the economy, the link exists for the public to punish or reward the president accordingly, just as they would for other macroeconomic outcomes.
Not only do they find that stock market performance is important—they find it’s the most important predictor of presidential approval.
Why? Because so many Americans currently own stocks. These days, more than half of American households own stocks—up from roughly one-third during the 1980s. A lot of people have direct skin in the game, so a stock market uptick (or downturn) affects them directly.
Trump’s Approval Ratings Will Continue to Rise
President Trump is overseeing record-breaking growth in the stock market. The S&P 500 is currently at 2,872.87—up 32.7% since Trump was elected in 2016. The Dow Jones Industrial Average is at 26,616.71—having gained 41.2% since the election.
What about the NASDAQ Composite? That’s booming too, up to 7,505.77 and gaining 43.3% over the same time period.
These trends are likely to continue—not forever, obviously, but at least through the end of 2018. US GDP is expected to grow by 2.7% this year, and the recently-passed GOP tax bill should give the stock market an extra push.
With a continuing stock market expansion, President Trump’s approval ratings should continue to rise. That means more popular support for the pro-business, pro-growth agenda that has benefitted so many investors.
It also means the GOP will have better chances of holding onto majorities in the House and Senate in the midterm elections coming up this Fall. That’s crucial—with strong Republican majorities in Congress, the country’s economic revival will have a better chance of continuing.
This is a self-fulfilling prophecy: stock market growth means higher approval ratings, which feed right back into higher stock market growth. As long as President Trump keeps doing what he’s doing, he’ll keep winning. Investors will keep winning, too.