Move over Grover Cleveland (22 and 24). The epic grade school social studies question must now be rewritten, as we are now on the brink of having our second President in U.S. history in Donald Trump (45 and soon to be 47) with the distinction of serving two non-consecutive terms. But far more important than revisions to our trivia books is the nomination season that is now underway in the wake of the election. And the number that matters most to financial markets waiting with bated breath is who will be nominated the 78th United States Secretary of the Treasury.
Why the focus on the next Treasury Secretary? Put simply, if the President is the CEO, the Treasury Secretary is the CFO of the United States of America. And while they serve at the pleasure of the President, they are still the person with the primary responsibility of overseeing the U.S economy and directing fiscal policy on behalf of the U.S. government. As a result, the policy views and perspectives of the nominee that eventually starts serving in this role come late January matter a great deal to financial markets.
As of this writing, four names lead the list of potential nominees for Treasury Secretary, with an announcement expected at any time. But regardless of who is ultimately selected, history provides an instructive guide on how markets are likely to react once a person is finally named.
It’s easy being green. Much like the immediate aftermath of a presidential election, the stock market historically has performed well in the trading days and weeks that follow the announcement of the Treasury Secretary nominee. Just as when the outcome of the presidential election that includes the U.S. Senate and U.S. House enables investors to better predict future fiscal policy outcomes, the appointment of the Treasury Secretary allows for the further sharpening of estimates and policy expectations. Moreover, the naming of Treasury Secretary typically bolsters investor confidence (assuming it is a market friendly pick, which has been a priority for administrations dating back over the last several decades and undoubtedly will be a emphasis for the incoming administration), particularly since unlike many other cabinet positions that can be more transient, the person named to Treasury Secretary often stays in that role for the entirety of a presidential term.
Consider our first recent example with the nomination of Tim Geithner on 11/24/08 to serve as the 74th Treasury Secretary in the first Obama administration. Despite the fact that we were in the depths of the Great Financial Crisis at the time, the S&P 500 rallied by +18% for more than a month through early January 2009 immediately following the news.
Next was the nomination of Jack Lew as the 75th Treasury Secretary for the second Obama administration. This nomination came very late in the process on January 10, 2013 just days before inauguration day. Still the S&P 500 added +1% in the days that followed.
Most recently, the nomination of Janet Yellen as the 77th Treasury Secretary on 11/30/20 as the Biden administration came into office helped continue stocks already on a leg higher by another +6% in the weeks that followed.
I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.
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