By Keith Gangl
The highly anticipated 2024 election is over, and a winner has emerged. Donald Trump will be the next US President, the US Senate will be controlled by Republicans, and the House of Representatives remains undecided.
The initial response the day after the election was positive for the stock market and negative for the bond market. The stock market had its best post-Election Day in history, which had stocks hit new all-time highs.1 The first move after an election and other key events is not always a sustainable trend, and other factors outside the election could enhance or reverse the current trends.
Our long-standing belief is that politics is not the primary driver of markets in the long term. What will drive stocks over a longer period is the health of the economy, growth of companies within that economy, and the valuations of the market (the price we are paying for company growth). The chart below provides the performance of the S&P 500 (black line) since 1930, with the blue and red bars representing the President in office during that time. The key takeaway is the S&P 500 has performed well under both Democratic and Republican presidencies as it is the companies, not the politicians, which provide those returns.
In our opinion, one of the positive factors for investors post-election was clarity. Expectations were for a close election and investors were fearing the possibility of a drawn-out process and greater uncertainty and potential legal battles that further delay outcomes. After election night, the results were clear and it removed this uncertainty as a concern.
Other reasons provided for that initial positive reaction include:
· Potential extension of tax cuts, which were due to expire at the end of 2025.
· Prospects of pro-growth policies and lower regulations
With the election now behind us, investors will turn their attention from who wins to analysis of the intentions of the victorious party. At this time, it is too early to determine what fiscal policy changes will pass nor how they may impact the markets. At Gradient Investments, we will continue to monitor potential fiscal policy changes to help give us insight on potential actions, but we do not recommend knee-jerk reactions and dramatic portfolio changes based on the results of an election.
As shown in the chart above, the S&P 500 has done well under a variety of government scenarios. Our actions regarding potential changes will remain consistent and based on fundamental opportunity and not based on political prognostication. Currently, business fundamentals and economic trends are relatively healthy while stock valuations are expensive. As a result, our opinion is that future market performance may be more modest than what we have experienced recently but we do not have any indications of rapidly deteriorating “doom and gloom” scenarios. If our opinions change, it will be based on changes to economic and business activity, and we will communicate those when necessary.