Why Stock Prices Have Been Rising Steadily Since Election Day David Greene talks to David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal, about why stocks have been going up.
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Why Stock Prices Have Been Rising Steadily Since Election Day

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Why Stock Prices Have Been Rising Steadily Since Election Day

Why Stock Prices Have Been Rising Steadily Since Election Day

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DAVID GREENE, HOST:

Donald Trump's election victory has been good for the stock market. And I mean really good. Stock prices have been rising steadily since Election Day. And let's dig into what's happening with David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal and a frequent guest on this program. Hey, David.

DAVID WESSEL: Good morning.

GREENE: So we're really talking about record-setting times on Wall Street since the election. This is a big deal.

WESSEL: Absolutely. I mean, the world may be a scary and uncertain place. But investors sure seem to like what they see. The Dow Jones Industrial Average is up 16 percent over the past year - 9 percentage points of that since Election Day - set a new record yesterday and almost made it to 20,000, which is a milestone of sorts. It's across the board. Microsoft, up 15 percent so far this year, Exxon up 16 percent, Goldman Sachs up 35 percent and Caterpillar, the equipment maker, up 39 percent. It's really amazing.

GREENE: Weren't their predictions that this was going to go in the opposite direction?

WESSEL: There were. Sophisticated economists looked at how the financial markets reacted to turning points in the presidential campaign and declared with a great deal of confidence that a Trump victory would lead the market to tank. And they sure were wrong.

GREENE: I guess they can join the club now with a lot of pollsters.

WESSEL: Absolutely.

(LAUGHTER)

GREENE: Well, I mean, is there any way to know why this is happening? Can you draw a connection between what investors are up to and Donald Trump getting ready to take office?

WESSEL: Well, look. It's always hard to know what's driving the stock market. But clearly the markets expect President Trump and the Republican majority in Congress to pursue business-friendly policies, more spending, a cut in taxes, particularly on business, a rollback of regulation. All that's good for companies' bottom line, even if Mr. Trump continues to criticize individual companies.

And they also see that while the rest of the world may not be doing so well economically, the U.S. does appear to be increasingly healthy. And you see that in other markets, too. The bond market has pushed up interest rates a lot. The value of the dollar is at a 14-year high. So the markets are seeing a much better U.S. economy going forward.

GREENE: David, am I wrong? I mean, at moments like this, do people start worrying that there's a bubble and that some plunge is coming - is imminent?

WESSEL: Absolutely. I mean, there's no way to accurately predict when the stock market's going to change its mind and go the other way. But it does look like the stock market is ignoring some of the business-unfriendly policies that Mr. Trump says he favors - on trade, for instance. And it does seem to a lot of Washington insiders that the markets are anticipating much quicker and much bigger set of tax cuts than they think is likely to come out of Congress.

You know, Bob Shiller, who's a Nobel Prize winner, has this gauge that compares stock prices to corporate profits - goes way back to the 19th century. And when you look at it, it's not as high as it was before the Internet bubble burst in the early part of the 2000s. But it is higher than any time besides that since 1929.

On the other hand, Janet Yellen, the Fed chair who presumably knows something about the economy, was asked about the stock market the other day. And she said that, given the low level of interest rates, stock prices remain, in her words, within normal ranges.

GREENE: And I guess another market that it's worth watching is housing prices. I mean, a lot more Americans own their own homes than have a lot of money in the stock market. What are you seeing there?

WESSEL: Well, stock prices - I mean, house prices are back to where they were before the housing bust. Now, they still have a ways to go if you adjust for inflation. We know that mortgage rates are rising now. And that could restrain the increase. And the effects of the housing bust are just enormously long-lasting. You know that 12 percent of Americans with mortgages still owe more today on their loans than their houses are worth.

GREENE: All right - speaking to David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal.

David, thanks as always.

WESSEL: You're welcome.

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