Votes are still being counted but the race is all but over. Donald Trump has been elected to be the next President. Markets were setting up for a big rally regardless of who won after a wave of de-risking took place in early fall. Once the election was called and the looming uncertainty became a certainty, the S&P gained 2.5% Wednesday while small cap rocketed up 5.8%. Small caps seemed to benefit more due to the easier fiscal policy expected and a continued decline in interest rates. So what about the rest of the market? What does the ushering in of a new administration mean for the markets?
If history can tell us anything, the answer would be ‘not much’. Some policies will certainly change, and taxes could be adjusted, but over the long-term the President and their party affiliation tend to have little impact on the market as a whole. The main market drivers we are talking about today are the same ones we were talking about yesterday and will be the same ones we will talk about tomorrow.
- Interest Rates and inflation
- Jobs and unemployment
- The probability of a soft landing and/or recession
On Thursday, November 7, the Fed met and agreed to cut interest rates by another quarter (0.25%) point. The cut is an answer to the continually decline in inflation along with moderate to strong jobs and unemployment data. There’s already a 75% chance of another quarter point rate cut during the next Fed meeting on December 18th. Next year, though, is anyone’s guess. Experts from JPMorgan and BlackRock believe the campaign promises of tariffs and a stricter immigration policy could cause inflation to tick up.
In 2017, Jamie Menges wrote a series of posts on Investing in a Trump World – Rule #1, Rule #2, Rule #3. “Our objective is to make complex financial topics more approachable for our clients. No doubt the presidential election… made things seem more complex.” A lot of people are feeling a lot of emotions right now. From an investment perspective, “if you’re optimistic, I believe you need to stick to a tried-and-true investment strategy, and likely reign in your euphoria. If you’re on the edge of the cliff, I would also remind you that this market was not born and raised on Donald Trump’s watch, nor will it die on his watch.”
“A truth that you can hold onto – your portfolio will outlast any president, or congressional term. Portfolios are measured in decades. Politicians are measured in years.”
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