Why Has the Stock Market Risen so Much Since the Us Presidential Election?
21 Pages Posted: 4 Oct 2018 Last revised: 29 Apr 2020
Date Written: 2018-08-21
This paper looks at the evolution of U.S. stock prices from the time of the Presidential elections to the end of 2017. It concludes that a bit more than half of the increase in the aggregate U.S. stock prices from the presidential election to the end of 2017 can be attributed to higher actual and expected dividends. A general improvement in economic activity and a decrease in economic policy uncertainty around the world were the main factors behind the stock market increase. The prospect and the eventual passage of the corporate tax bill nevertheless played a role. And while part of the rise in stock returns came from a decrease in the equity risk premium, this decrease was relatively limited and returned the premium to the levels of the first half of the 2000s.
Keywords: Dividends, Earnings, Equity returns, Equity premium, Gordon formula, Tax reform, U.S. presidential election
JEL Classification: G12, G18
Suggested Citation: Suggested Citation