With the election behind us, I’ve been getting a lot of clients calling either very concerned or ecstatic about Trump’s victory. This is reflective of how the entire country feels right now. With that said, I wanted to give you my views on what this could mean to the economy, stock market, and specifically to you. Following a long election season, Donald Trump was declared the winner, making history as the first president since Grover Cleveland in the late 1800s to be elected two non-consecutive presidential terms. Elections can be a very emotional time, but it is important to remain focused on the economic and investment implications this election will bring. Trump’s campaign focused on the economy, tariffs, immigration, and tax policies. Specific details on these initiatives and priorities will become clearer as we near Inauguration Day in January, but the likelihood of change is high. Economic growth estimates for 2025 may be revised upward, due to a deregulated environment that could boost growth, along with potential increases in inflation. However, even if we do see arise in inflation, it may not come into effect until 2026. In Donald Trump’s first term, tariffs and tax reform were also major policy initiatives, but we never saw an inflationary spike. This time, inflationary risks might be higher as service inflation remains elevated relative to pre-pandemic levels, and the size and scope of new tariffs could be larger. The initial market reaction to the 2024 election is likely two-sided: First, markets are pricing out the possibility of a contested election, where there is not a clear winner. This was the biggest risk to markets. Secondly, markets are adjusting to the Trump victory. While bond yields are likely to rise partially due to this relief rally, they are also rising around the possibility of higher inflation and higher-than-expected rates in the future. Bond yields surged after the election and the strong likelihood of deficits remaining high also adds upward pressure to bond yields. The stock market is also rallying about this relief and Trump’s victory, with small cap stocks and economically sensitive value sectors such as Financials, Energy and Industrials leading the gains. This indicates that economic growth prospects may still be strong. Essentially, how the economy plays out over the next presidential term is uncertain. It’s important to remember that the U.S. economy is $29 trillion in size and our labor force employs nearly 160 million people. The 500 large-cap corporations in the S&P 500 generate 40% of their revenue outside of the U.S. A new administration results in a new political environment, but corporations have always shown resiliency over time as they adapt to policy changes. The data backs this up. In the last 19 4-year presidential cycles, the S&P 500 posted positive returns 17 times, with an average annualized return of 11.9%. Returns have been strong under both political parties. With that said, investors may benefit from broader portfolio diversification. Returns could move away from the high growth tech darlings to value, mid-caps, and small caps. At this time, active management could excel in an environment of increased market volatility. It is important to stay focused on your own financial goals and avoid being too bullish or pessimistic based on political views. There are broader economic forces at play than who is President of the United States. Remember, I am here to support you through this evolving landscape and ensure that your financial plans remain aligned with your goals. As always, if you have any additional questions or concerns, please feel free to reach out to me or anyone of my comprehensive team members.
John J. Vento, CPA, MBA, CFP® President & CEO Financial Advisor
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