(Bloomberg View) — When President Barack Obama was elected in November 2008, the U.S. economy was shrinking at a rate unmatched since World War II. In the seven years between then and his final State of the Union address Tuesday night, global investors have enjoyed stellar results from the rapidly expanding Obama economy.
Market prosperity has been built on a solid economic foundation. The unemployment rate has declined the most in any five-year period since 1989, from its 10-percent peak in October 2009 to 5 percent last December. The budget deficit as a percentage of gross domestic product has plummeted 7.7 percentage points from a high of 10.1 percent in 2010, the biggest favorable reversal in at least 50 years.
That’s helped propel the value of U.S. companies to half the world’s publicly-traded equity for the first time since 2001. The 10 companies with the highest market capitalization are American — the first time that’s happened since Ronald Reagan was president.
U.S. politics remains as politically divided as ever, but the recovery has proved bipartisan. Many states led by Republican governors and legislatures have shown big increases in prosperity measured by job growth, personal income, mortgage delinquencies, tax revenues, home prices and corporate equity, according to datacompiled by Bloomberg.
When Obama was elected, the U.S. was losing almost 9 percent of its GDP per quarter. The bankruptcy of Lehman Brothers a month earlier pushed the global financial industry into paralysis and General Motors and Chrysler to the brink of insolvency.
Only five U.S. firms were among the world’s 10 largest by market cap, down from nine in 2001. Stocks of American companies made up less than 40 percent of the value of the top 500 global equities, the smallest share in decades, according to Bloomberg data. The U.S. budget deficit exploded from 4.7 percent at the end of 2008 to 10.1 percent of gross domestic product over the next 12 months.
The stock market bottomed in April 2009, when the government was starting to restructure the U.S. auto industry and administer stress tests to determine whether banks could survive another crisis. The ensuing rally added the most points to the Standard & Poor’s 500 Index since at least 1927, when Bloomberg started compiling such data. On a percentage basis, the stock market is up 178 percent since March of 2009, the biggest seven- year increase since a comparable rally ended in April 2001.
Obama’s critics are correct to point out that the expansion has been halting and uneven, accompanied by rising inequality, anemic wage growth and underemployment. Growth has been slower than after many previous recessions. It’s significant, though, that the three best-performing industries since March 2009 are consumer discretionary, financial and technology, showing that Americans are borrowing again and have enough spare cash to make Amazon, Alphabet, Apple, Berkshire Hathaway, Facebook, Home Depot, JPMorgan Chase, Walt Disney and Wells Fargo winning investments.
Big and small companies, as measured by the Russell 3000 Index, are growing at an annual rate of 15.5 percent since March 2009 and outperforming the rest of the world by 7.4 percent, according to Bloomberg data. During the 20 years prior to Obama’s presidency, the Russell’s yearly gain was 4.5 percent and it outperformedthe rest of the world by 3.9 percent each year.
What’s especially compelling is that U.S. firms are investing in their growth at a record pace. Capital expenditures of the S&P 500 are the most since at least 1990, when Bloomberg began compiling such data, and increased 68 percent since 2010. The only comparable investment spree occurred between 1995 and 2000, when the Internet began transforming U.S. commerce.
American companies also are healthier than they have ever been. The ratio of net debt to Ebitda (earnings before interest, taxes, depreciation and amortization) of the S&P 500 — the most widely-used measure of corporate well-being — improved the most during the Obama presidency and hoversat all-time lows, according to Bloomberg data. The profitability of these companies, measured by trailing 12-month gross margins that show how well they can turn revenue into profit, is rising at the fastest rate compared to global peers since 2006, and they are outperforming their non-U.S. competitors the most since 2001.