MARKET UPDATE
Xerxes Nabong, CFP®, CDFA®
Philip M. Maliniak, CRPC®
Nicole Brown-Griffin, CFP®, CDFA®, EA
Aaron Petty, Client Associate
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Post-Election Market Insights: What Investors Need to Know
With the 2024 U.S. presidential election behind us, markets are reacting to a decisive victory by President-elect Donald Trump. As the Republican Party regains control of both the Senate and the House, policy changes are likely to impact sectors, industries, and investor sentiment in meaningful ways. History offers valuable insights into how markets tend to perform during election cycles, highlighting opportunities and reinforcing the importance of a disciplined approach to investing.
Market Performance Around Elections: Lessons from History
Elections often introduce short-term uncertainty into markets, which can create both risks and opportunities for investors:
- Pre-Election Volatility: Historically, markets experience weaker returns and increased volatility in the months leading up to elections, driven by uncertainty around economic and regulatory policies. For example, since 1988, the S&P 500’s average return has been muted in the three months before Election Day.
- Post-Election Rebound: Once election results are clear, markets tend to stabilize and rally. Between Election Day and Inauguration Day, the S&P 500 has posted positive returns 80% of the time since 1984, with an average gain of 5.9%. This trend highlights the benefits of staying invested during periods of political uncertainty.
Policy Changes to Watch in 2025
With a Republican-controlled Congress, several policy priorities are expected to shape the economic landscape:
- Corporate Tax Cuts: Trump has proposed lowering the corporate tax rate from 21% to 15%. This move could significantly boost earnings for U.S. companies, particularly benefiting small-cap stocks and domestic industries.
- Deregulation: Rolling back regulations in sectors like energy, manufacturing, and finance could spur economic activity. However, the benefits may take time to materialize.
- Trade Policies: An aggressive stance on tariffs, particularly targeting China, may introduce new challenges for multinational companies. At the same time, smaller domestic companies with limited exposure to international supply chains could thrive.
These policies align with a pro-growth agenda but also introduce risks, particularly for sectors dependent on global trade and supply chains.
Opportunities Across Markets
Despite potential challenges, the economic backdrop remains robust, presenting opportunities across asset classes:
- U.S. Equities: Markets are near all-time highs, reflecting strong fundamentals. Small-cap stocks and value-oriented sectors like energy and industrials are poised to benefit from lower taxes and domestic-focused policies. Historically, value stocks have outperformed growth stocks in the six months following elections.
- Fixed Income: Treasury yields have risen as markets price in fiscal expansion and potential inflationary pressures. Active management will be key in identifying opportunities in corporate bonds and fixed-income securities.
- Global Markets: While U.S. policies may challenge international markets, emerging economies like India could see gains due to their domestic growth drivers and minimal exposure to U.S. tariffs.
Staying Focused Amid Political Noise
One of the most important lessons from history is that investing based on political outcomes often leads to suboptimal results. A long-term, diversified strategy consistently outperforms “partisan” approaches:
- Since 1968, a $10,000 investment in the S&P 500 held through both Republican and Democratic presidencies would have grown to $3.8 million by 2024.*
- By contrast, investing only during Republican presidencies would have yielded $83,360, while investing only during Democratic presidencies would have grown to $454,807.*
* First Trust Advisors L.P. (2024, November 7). Three on Thursday report. Retrieved from https://www.ftportfolios.com/Commentary/Economic Research/2024/11/7/three-on-thursday—elections-over,- now-what-stay-focused
These numbers underscore the importance of maintaining a non-partisan, long-term investment strategy, regardless of who occupies the Oval Office.
Next Steps For Your Investments
With a new administration comes both challenges and opportunities. As policy priorities unfold over the coming months, it’s important to stay aligned with your financial goals while adapting to market changes. Consider these steps:
- Review Your Portfolio: Ensure your asset allocation reflects your risk tolerance, time horizon, and objectives.
- Leverage Volatility: Market dips can present buying opportunities for disciplined, long-term investors.
- Focus on Fundamentals: Stick to high-quality investments with strong growth potential and avoid making decisions based on political sentiment.
We are committed to guiding you through changing markets with thoughtful strategies and timely insights. If you feel that recent political changes warrant adjustments to your portfolio, please don’t hesitate to reach out to us. While we stand behind a long-term investing approach, our team is here to review your portfolio to ensure it aligns with your comfort levels and helps you achieve your long-term goals in this evolving economic and political environment.
Your Team at Wealth Avenue,
