Who would have thought that the investment bank that took so much flack during the election campaign would be the all-star of the Trump stock rally? Fortune discusses how this unlikely stock is responsible for sending the Dow into record territory.
Stock market investors who are enjoying the post-election rally-dubbed the “Trump Bump-owe a major debt to the controversial bank that became a political lightning rod in the presidential campaigns.
Goldman Sachs stock is responsible for a whopping 29% of the Dow’s overall bump since the election. Put another way, Goldman Sachs alone is responsible for more than 400 points out of the Dow’s total 1,400-point gain during the “Trump Bump.” Also on Friday, Trump himself offered a White House job to a top Goldman Sachs executive, Gary Cohn, following appointments of two other former Goldman employees to the new administration.
In two recent articles, Is the Stock Market Rally Sustainable and What Stocks Are at Risk despite the Trump Stock Rally, we noted that investors are assuming that infrastructure improvements, offshore corporate cash and tax cuts would lead to more jobs, especially for the middle class. That rationale does not explain the Goldman Sachs rally.
Here is what Fortune says about bank stocks going up.
Bank stocks have benefited from both the anticipation of higher interest rates, which the Federal Reserve is expected to raise next week, as well as the belief that the Trump administration will roll back some of the more onerous financial regulations stemming from the Dodd-Frank Act.
But where does it go from here? Should you be investing in Goldman Sachs and other bank stocks or has the so-called Trump Bump peaked out?
Half and Half
Not everyone is participating in the current stock rally. CNBC Trader Talk says half of Americans are losing out. This largely has to do with the vast exodus from the market after the financial meltdown of 2008.
Everyone knows we lost a vast swath of the investing public after the 2008 financial crisis, and for the most part they have not come back, even as the stock market has come back.
A Gallup poll conducted in April of this year stated that 52 percent of Americans say they invest in stocks, matching a record low, after hitting a record high of 65 percent in 2007.
It’s much worse than this. Stock ownership is increasingly concentrated in the hands of the wealthy. New York University economist Edward Wolff estimated that in 2013 about 90 percent of all stocks were owned by the wealthiest 10 percent of households.
The sad fact is that while Trump campaigned on the promise of improving the life of the average family his election has occasioned another bonanza for the wealthy. Despite bashing the extremely wealthy while pursuing votes Mr. Trump is packing his cabinet with billionaires. Investors should be happy with the Trump Bump and perhaps the market rally will entice more investors to return to the market. Unfortunately continued prosperity depends on the success of Trump’s version of supply side economics and that may or may not work out so well.