On the evening of February 28, 2017, Donald Trump addressed a joint session of Congress; polls afterward showed a positive public reaction to his speech, and media coverage was generally positive, even in outlets traditionally not favorable to Trump. Perhaps the most notable reaction was the next day’s surge in the U.S. stock market, as the Dow-Jones Industrial Average (DJIA) rose 1.46% to close above 21,000 for the first time, and the S&P 500 rose 1.37%. How does this compare to stock market reactions to similar addresses by previous Presidents? We analyzed this question for all Presidents since World War II and found some interesting results.
First, we reviewed stock market activity after each President’s first address to a joint session of Congress, from Harry Truman onward. The initially obvious metric is the percentage increase in a stock index, from its closing price on the day of the President’s address to its closing price on the following day, giving investors a full day to react to the speech and ponder its implications. For this one-day period, it is safe to say the President’s policy address is the dominant story in U.S. news coverage. We will call this first metric the raw percentage increase.
First, we tabulate these figures for the DJIA:
Trump’s raw percentage increase of 1.46% is by far the largest, with Gerald Ford in second place at 0.36%. Surprisingly, most Presidents (9 out of 13) saw the DJIA decline on the day after their first address to Congress, several of them by more than 1%. This becomes clearer if we sort the table by its final column:
However, as explained in our previous article about post-election stock rallies, a better measure is one that eliminates the effect of pre-existing market momentum. For example, if the President gave his address on Tuesday evening, and if the DJIA rose 50 points from Monday’s close to Tuesday’s close, then another 50-point rise from Tuesday’s close to Wednesday’s close would be fully explained by market momentum, so this rise should not be interpreted as a positive market response to the President’s speech. By contrast, if the DJIA had been falling before the President’s speech but saw a 50-point rise immediately after the speech, that would indicate a strong positive reaction. We therefore define a relative percentage increase as follows: take the number of points the DJIA rose from Tuesday’s close to Wednesday’s close, subtract the number of points it rose from Monday’s close to Tuesday’s close, then divide that result by the DJIA’s value at Tuesday’s close.1
Using this measure, we tabulate the DJIA’s relative percentage increase for each postwar President’s first address to Congress:
This measure, which eliminates ongoing market momentum to give a more accurate reflection of the impact of the President’s speech, once again shows Trump in the lead by a large margin, with 1.58%. Surprisingly, every other President has a negative value except for Jimmy Carter at 0.76%. This is more apparent if we sort by the final column:
We need to ensure this pattern is not limited to the DJIA, so next we consider a much broader stock index, the S&P 500. This index did not exist in its present form until 1957, so we must exclude Truman and Eisenhower. First, we calculate the table for the simpler measure of raw percentage increase, then we sort by its last column:
We find that Trump’s address to Congress was followed by the largest raw percentage increase in the S&P 500, namely 1.37%. We continue onward to the relative percentage increase, eliminating the effects of market momentum:
Yet again, the sorted table shows Trump at the top. For both the DJIA and the S&P 500, Trump and Carter were the only Presidents who saw the stock market rise following their initial addresses to Congress, above and beyond what would be expected from pre-existing market momentum.
Of the various options, we consider relative percentage change a better measure than raw percentage change because it eliminates the effect of ongoing market momentum, and we consider the S&P 500 a better measure than the DJIA because it reflects a larger and more diverse pool of companies. However, this is moot because all four combinations of these measures—DJIA or S&P 500, and raw percentage change or relative percentage change—show that Trump saw the largest next-day rise in the stock market for any President’s initial address since World War II, and in all four combinations, this was true by a large margin.
So far, we have focused on Presidents’ initial addresses to Congress because this is the sole point of comparison available for Trump. However, it is natural to wonder how the stock market responded following other annual Presidential addresses to Congress, not just the first one by each President. These addresses have occurred in a consistent pattern since 1978,2 so we can calculate four decades’ worth of data in that timeframe. The bar graph below shows the relative percentage change in the S&P 500 immediately following each year’s address:
The rise after Trump’s address was the second largest in this four-decade period. The largest rise, by far, followed George W. Bush’s address in 2002, four months after the September 11 attacks, in which Bush expressed the nation’s resolve in standing up to terrorism. In third place, just slightly behind Trump’s, was George H. W. Bush’s 1991 address, which occurred near the end of Operation Desert Storm.
As in our previous article, we end by noting that the strong stock market response to Trump’s address reflects investors’ expectations during a narrow timeframe. Trump has not yet had the chance to finalize and implement his economic policies, so it is far too soon to assess their impact except through the prism of public expectations.
1. The one-day stock market rise following Donald Trump’s address to Congress was, by far, the largest one-day rise seen after any post-WWII President’s initial address to a joint session of Congress. This is true regardless of whether we use the Dow-Jones Industrial Average or the S&P 500, and it is true regardless of whether we eliminate the effect of pre-existing market momentum.
2. Of all annual Presidential addresses to Congress in the past four decades, Trump’s was followed by the second largest one-day rise in the S&P 500. The largest rise occurred after George W. Bush’s State of the Union address in 2002.
1. In some instances, the President’s address to Congress occurred on a day other than Tuesday, so of course the days of the week would be adjusted accordingly. If the day before the address was not a trading day, the last trading day before the address was used; this most recently occurred in 2015 (when the address fell on the Tuesday following Martin Luther King Jr. Day) and 2008 (when the address was given on a Monday).
2. From Ronald Reagan onward, new Presidents have addressed joint sessions of Congress within a few weeks of inauguration. This initial address is not technically called a State of the Union because today that term is reserved for addresses in subsequent years, when the address is at least partly a retrospective view of the President’s policies and their impact. By contrast, Richard Nixon and Jimmy Carter waited until the one-year mark to address joint sessions of Congress for the first time, thereby beginning with a true State of the Union. Harry Truman, Lyndon Johnson, and Gerald Ford, having succeeded to the Presidency mid-term, gave their first addresses to joint sessions of Congress in January of the year after their ascension to the Presidency, so their initial addresses would be considered State of the Union addresses as well. By limiting our bar graph to the period from 1978 onward, we therefore avoid some inconsistencies, such as the fact that the 1977 address was given by Ford (immediately before stepping down) rather than by Carter (after taking office). As a side note, Carter was the last President to provide his State of the Union addresses to Congress in writing, in addition to giving televised oral addresses, but throughout this article we limit our discussion to oral addresses. For an excellent survey of Presidential addresses to joint sessions of Congress, including State of the Union addresses, see this essay by Gerhard Peters of the University of California, Santa Barbara.
For DJIA closing prices, we used https://measuringworth.com/DJA/. For S&P 500 closing prices, we used https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC.
For State of the Union addresses (and equivalent addresses to joint sessions of Congress), we used the dates compiled by Gerhard Peters as part of The American Presidency Project at the University of California, Santa Barbara.
The full data table corresponding to the bar graph appears below:
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