Trump stock market rally is far outpacing past US presidents

President Donald Trump’s stock market stacks up well against the majority of his presidential predecessors.

The S&P 500 has returned more than 50% since Trump was elected, more than double the 23% average market return of presidents three years into their term, according to data from Bespoke Investment Group dating back to 1928.

The 500-stock index gained more than 28% this year, well above the average 12.8% return of year three for past U.S. presidents.

“Year three has been by far the best year of the cycle with an average gain of 12.81%, and the playbook has stuck to the script in year three of the current cycle,” the firm said in a note to clients last month.

Despite being plagued by a volatile U.S.-China trade war, 2019 has been a year of all-time record highs for the major stock averages. The S&P 500 crossed 3,200 for the first time ever last week, hitting its seventh round-number milestone of 2019. While business investment slumped due to uncertainty surrounding the world’s two largest economies, public market investors remained confident putting money into stocks.

Trump’s market got a boost from Federal Reserve Chair Jerome Powell and the central bank, which lowered interest rates three times this year, the first time since the financial crisis. The Fed slashed rates on fears of slowing growth at home and abroad. Trump was publicly critical of Powell for not lowering rates more and faster, often mentioning the near $15 trillion in negative yielding government securities outside the U.S.

Markets were also helped by one of the tightest labor markets in history, with the unemployment rate currently at 3.5%, its lowest since 1969. And since Americans were working, they were also spending. The strong U.S. consumer held the economy up during some reported manufacturing contractions. Consumers also held strong amid a messy bond market, when shorter-term bond yields rose above long-term yields causing the yield curve to invert, a known phenomenon to proceed recessions. The curve has since steepened and is no longer inverted.

Trump’s third year is above average, but not the best of any past president. Just in 2013, former President Barack Obama’s stock market returned more than 32%, as the economy bounced back from the Great Recession.

Trump’s first year was about triple the presidential average, with the S&P 500 gaining 19.4% compared to the average 5.7%.

Businesses get help from Trump’s 2017 tax overhaul, with companies buying a record number of shares back with the extra money.

The sore spot for Trump’s record was year two. Trump’s market had a below average second year in 2018, when the stock market suffered its worst December since the Great Depression amid the intensified U.S.-China trade war and a rate increase from the Federal Reserve. The S&P 500 fell 6.2%, compared to the average gain of 4.5%.

The third year of a presidential term is historically the best year for stocks. If history is any guide, Trump is in for another strong year in 2020.

Stocks are up in year four more than 66% of the time and the S&P 500 returns an average of 5.7%, according to Bespoke.

Much of these stocks gains will depend on how trade talks continue with China. Earlier this month there was a so-called “phase one” trade deal in which China agreed to billions in agricultural purchases and the U.S. agreed to cancel a round of tariffs. For the most part, stocks shrugged off the deal due to its lack of clarity and path to phase two.

While Trump is confident about a strong market next year, Wall Street is forecasting much more modest gains. The average S&P 500 target for 2020 among analyst on Wall Street is 3,330, less than 4% higher than Tuesday’s close. Trump will have to eek out about a 6% gain in the S&P 500 to beat the average presidential return.

—with reporting from CNBC’s Nate Rattner and Michael Bloom.