Stockmarkets do not reward firms for investing in Trump’s America

One answer: their capital-expenditure (capex) plans. All three have announced investments in America since Donald Trump won last year’s presidential election. In January Stellantis (whose largest shareholder part-owns The Economist’s parent company) said that it would build the next Dodge Durango in Detroit and reopen an assembly plant in Illinois, putting union members back to work. Two months later Merck announced the opening of a vaccine plant in North Carolina. And on April 10th Barry Callebaut said it would expand a plant in America to help it cope with the “disruptive environment" Mr Trump’s new administration has created.

Mr Trump is, of course, delighted by this kind of news. The White House added the chocolate-maker to a list of more than two dozen companies that have announced investments in America since the president’s return to power. “We are already seeing progress in reshoring American industry," it said.

The spending is presumably good for America. But is it good for the companies themselves? Even the president should care about this question. Trump Media, one of his firms, has just launched new investment accounts that let people bet their money on MAGA themes like “Made in America". So do capex announcements that gratify Mr Trump also please shareholders?

In theory, the answer is ambiguous. The impact of capex on a company’s share price can be sweet, bitter or neither. An optimistic view is that such spending ought to lift share prices. Why else would companies do it? Managers have strong incentives to care about what shareholders think. And shareholders have reason to defer to a firm’s judgment about the deployment of capital. That is, after all, why investors entrust their capital to a firm in the first place.

Other theories are less optimistic. Institutional investors may have short time horizons, punishing any costly plan that privileges distant years over the next quarter. Alternatively, managers may have skewed incentives of their own. They may be tempted to build a corporate empire with money that would be better returned to shareholders. According to a third, “efficient markets" view, investment is neither bitter nor sweet. A company’s share price will already reflect its expected capital outlays in the future. Capex announcements will move the price only if they deviate from these expectations.

Most studies find that share prices respond positively to capex announcements, if only weakly. The firms showcased by the White House have a couple of extra things going for them. Moving production to America will help them escape Mr Trump’s tariffs, as he himself points out. Another potential benefit is winning the president’s goodwill. Indeed, some bosses made their announcements standing alongside Mr Trump.

Despite all this, shareholders appear unconvinced. Of the listed companies that are featured in the White House press release, 20 have made firm capex announcements. In only 11 out of these 20 cases was the company’s share price higher on the day after the announcement than on the day before. Moreover, 15 of these companies have underperformed their national equity market since Mr Trump won last year’s election. A simple, equal-weighted average of these stocks has fallen by almost 12% in dollar terms since election day, compared with the 7% decline in the S&P 500 index of big American firms.

Many of the companies have idiosyncratic problems. Barry Callebaut has been hurt by the volatile price of cocoa. Merck has encountered weak demand in China for its otherwise successful human-papillomavirus vaccine. Stellantis bade farewell to its contentious chief executive in December.

And the firms’ plans may reflect fear more than enthusiasm. Their decision to expand operations in America so early in Mr Trump’s term could suggest they were unusually exposed to his tariff plans, and the “disruptive environment" levies have created. Certainly, for Stellantis, Merck and Barry Callebaut, Mr Trump’s second term has not been a box of chocolates. Another thing all three have in common: a slump in their share price since election day of over 20%.

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