Post-Election Recap: Market Commentary With A New President

The election season and its aftermath are full of emotions for many people. If your preferred candidate won, you’re probably feeling relief and optimism.

If they lost, you may be feeling anxious, frustrated, and pessimistic about the future.

With the election ending, the markets had a “relief” rally because the uncertainty about who would be the next president abated.

Donald Trump has been elected as the next president and the markets are taking that as favorable news. The expected reason is that there is a consensus on Wall Street that Trump’s policies would most likely have greater impacts on sectors that are considered more economically cyclical.

The financial sector is one of those sectors and in turn, we saw a massive run-up post-election. Trump’s policies are expected to bring less regulation, and that favors banks (big or small), so bank stocks like JP Morgan Chase and Goldman Sachs experienced significant gains the day after the election. The energy sector may also see increased benefits from Trump due to more drilling activity, and the industrial sector may also be seen as favorable under a Trump administration due to bringing back more manufacturing into the U.S.

Even though these expectations are reasonable, history shows us that these trades become more refined over time and expectations rebalance toward policy specifics and timelines for implementation.

In other words, no matter who wins, it’s tempting to think that the new government will have a big impact on your future, including your investments.

But here’s the truth: While elections can bring short-term market bumps, they rarely determine long-term success.

We’ve shown this chart before, but regardless of who is in office, the market has proven to be resilient long-term. Regardless of whether it's a Democrat or Republican.

Even though people get worried about the market during election years, history tells us that market resilience is often the quiet hero during election seasons. Since 1970, the S&P 500 has averaged an 11.6% return in election years, outperforming typical annual returns. So, while headlines hype the short-term drama, the market’s long game tends to remain steady.

However, we have been getting calls about the pros and cons of a Trump era in the white house, so we wanted to share our thoughts on how that could look moving forward concerning your investments. When it comes to Trump, there are a few key reasons why the stock market might seem to favor his candidacy:

1. Pro-Business Policies

·?Tax Cuts: During his first term, Trump implemented significant tax cuts, particularly benefiting corporations and high-income earners. The 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025. Even though that could evolve with Trump now in office, planning for potential outcomes based on your specific situation is pivotal. Trump has discussed even lowering the corporate tax rate further (currently at 21%), or at the very least extending that out since the current tax code (Tax Cuts and Jobs Act) is set to expire. Lowering the corporate tax rate could help corporate earnings and ultimately, stock prices.

·?Deregulation: As discussed with the financial sector, Trump took steps to roll back regulations in sectors like energy, finance, and healthcare, which many businesses found favorable. Lower regulatory burdens are often seen as good for corporate profits, and the expectation of continued or expanded deregulation could lead to more optimistic market predictions.

2. Optimism About Economic Growth

Trump’s administration pursued a more aggressive stance on economic growth through fiscal stimulus (tax cuts, trade deals, etc.), which some investors see as a boon for the market. If investors believe Trump will continue to stimulate economic activity, they may anticipate higher earnings growth and rising stock prices. Trump's administration also prioritized boosting American manufacturing and industries through trade tariffs and renegotiated trade deals. For some investors, the belief that these strategies could lead to more jobs and economic strength might be viewed positively.

3. Favorable Perception Among Certain Industries

As discussed, certain sectors, such as energy (especially fossil fuels), finance, and defense, are often seen as benefiting under the Trump administration. For example, the energy sector might favor policies that promote fossil fuel production, while defense contractors could see stock gains due to increased military spending.

4. Market Resilience to Political Uncertainty

In the past, when faced with political uncertainty (including Trump’s 2016 campaign and subsequent presidency), markets often rallied despite fears of volatility. This could be because investors felt that the U.S. economy and stock market were resilient enough to withstand political disruptions. There's also a psychological component—markets tend to rise when they expect a certain degree of stability, and while Trump's political style can be unpredictable, his administration’s business-friendly policies are seen as a stabilizing force by many investors.

5. Anticipation of Continued Loose Monetary Policy

Trump's tenure saw the Federal Reserve keeping interest rates relatively low for much of his administration, which was supportive of higher stock prices. Some investors believe that Trump will continue to support policies that align with keeping borrowing costs low to stimulate economic activity, which could be beneficial for stocks. In turn, though, that could also be inflationary if rates come down too much too soon. The Federal Reserve lowered interest rates by 25 basis points last week. During the Fed interview process, Fed Chair, Jerome Powell, said he would not step down if asked to do so. That means he is most likely going to stick to what he believes he is best instead of getting pressured into doing something else.

6. Market Cycles and Timing

The stock market’s favorability toward Trump could also be tied to the broader market cycle. If the economy is already doing well, the market may naturally favor incumbents or candidates whose policies are seen as continuing that economic growth. If the market is in a period of growth (for example, a post-pandemic recovery or strong consumer spending), investors may be inclined to view a Trump win as a continuation of positive momentum, especially given the historical performance of the market under his previous term.

Caveats

While there are reasons why some parts of the market might favor a Trump win, it's also important to remember that the market is highly unpredictable. Many factors—global events, domestic issues, interest rates, inflation, and more—can all affect stock prices. Additionally, not all investors agree on the long-term effects of Trump's policies. For example, some may be concerned about the long-term economic effects of tax cuts, trade wars, tariffs, or social and political polarization.

To bring it all together, the stock market might favor Trump’s win due to expectations of pro-business policies, deregulation, and tax cuts, as well as his previous record of boosting economic growth. However, it’s important to note that markets are influenced by many factors, and any projections based on election outcomes should be approached with caution.

Stay focused on the fundamentals and your long-term financial plan. Markets are resilient because they’re built to adapt. Companies will continue innovating and finding ways to thrive, no matter who’s in the White House.?

Reach out to our team if you have any questions: https://www.clarkgroupam.com/schedule-a-call

Disclaimer: The information discussed in this article is not intended to be investment, tax, or legal advice and is STRICTLY informational. For further disclosures, please visit: clarkgroupam.com/disclosure