The stock market surged last Wednesday morning following Donald Trump’s projected re-election and the Republican party gaining control of the Senate. The Dow Jones Industrial Average rose 1,503 points (3.6%). The broader S&P gained 146 points (2.5%), while the tech-heavy Nasdaq Composite rose nearly 3%. Market volatility also decreased significantly as investor uncertainty diminished. Stocks are projected to continue to rise the S&P 500 is expected to rise an additional 9% over the next year.
Market Performance:
The immediate market rally indicates increased inventory confidence. The S&P 500 reached a record high the day after the election, reflecting an optimistic outlook for the market.
Investor Strategies:
According to an article from Goldman Sachs, investors are already tailoring their portfolios to anticipated policy changes and specifically, re-engaging in trades that were successful during Trump’s first term. Key sectors include.
Financial and small caps: Bank stocks such as JP Morgan, are already experiencing gains from prospects of deregulation. JP Morgan, the world’s largest bank by assets, has already increased stocks by nearly 7% after Trump’s election.
Technology and energy: These stocks outperformed during Trump’s last term and are being revisited by investors.
Renewable energy: it is expected that renewable energy will underperform since Trump will likely undo some of Biden’s efforts to fight climate change. Renewable energy companies First Solar and Enphase stock values have decreased since the election.
The instant positive market reaction "validates the view that the Trump administration will be generally good for US businesses," said economist Jeffery Roach. However, the potential impacts of policy change could be a concern for the economy in the long run.
Policy Implications:
Trump's campaign heavily prioritized several key aspects that could influence the market: supporting lower corporate taxes, deregulation, and industrial policies that favor domestic growth. Other expected policy changes from Trump are tariffs on European and Chinese goods. These penalties on trade could have a significant impact on the economy, but the uncertainty of how extreme they will be could be more than the tariffs themselves. Previously, the efforts Trump's administration made on trade boosted industries like utilities, telecom services, and real estate, while the capital goods and the automotive and technology sectors underperformed.
Long-term Concerns:
The state of the economy was a main concern for American voters according to a survey conducted by Forbes and a driving force behind Trump’s re-election. Looking beyond the short-term surge of the stock market, economists worry how Trump’s policies could worsen the economy in the long run. However, it is hard to be confident predictions this early on with much uncertainty ahead.
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