MAGA Two.0

Although U.S. elections have always been highly significant for both global and national stock markets, the president's influence on the economy and markets is typically indirect and limited. While changes in the White House create uncertainty in the markets, and uncertainty is generally bearish, changes caused through fiscal policy and economic agendas have a more direct impact on price movements.

During his earlier term in office, Trump frequently proclaimed market records on social media, viewing them as a hallmark of his administration's success. With stock market success being one of his favorite indicators of the nation’s performance, let’s dive into the history of S&P’s performance post-election years, with a focus on how the market fared during Trump’s previous presidency.

Has the stock market acted differently based on whether a Republican or Democrat is President? The chart below shows S&P’s performance in the post-election years since 2001.

While these returns cannot be entirely credited to the president in office at the time, other factors have significantly influenced them, such as the Tech Crash in 2001 and the COVID-19 vaccine in 2021; the policy and economic responses to these events by the sitting president highly impact the effect of these events to the investor reaction.

MAGA

Just hours after Trump’s surprise victory on November 8, 2016, anticipation of significant tax cuts and financial deregulation sparked a stock market rally, driving the S&P 500 up by 5% within a month. Despite the challenges of being in office during the worst global pandemic in over a century, which kept Americans at home for nearly a year and led to a significant economic downturn, coupled with geopolitical tensions from the U.S.-China trade war, Trump managed to sustain strong performance in most cyclical momentum stocks.

As anticipated, Trump’s focus on infrastructure and domestic manufacturing has boosted the momentum stocks of the industrial and materials sectors.

While defensive momentum stocks largely struggled during the beginning of his term, the Utilities sector experienced growth following the onset of the global pandemic in 2019.

While information technology has lately been a key sector under the radar of U.S. investors, let's explore other sectors that flourished during Trump’s presidency.

As “America First" policies largely involve tariffs, these encourage more manufacturing to return to the U.S. by reducing the cost advantages of offshoring production. The below chart depicts the performance of the top 10 momentum stocks in the materials sector compared with the overall USA momentum stocks during President Trump’s first term in office:

Given that the materials sector consistently outperformed the market from 2017 to 2021 and that Trump’s tariff policies are likely to continue from his previous term, the sector should remain a key focus for investors this term.

Apart from industrials and materials among the cyclical sectors, financials, and consumer discretionary value stocks had a significant impact on the market before the global pandemic.

Trump’s inclination to increase deregulation led to a significant profit for large value-based financial sector securities. Large bank and financial stocks also gained momentum, fueled by expectations of deregulatory measures and pro-growth policies.

The financial titans are again poised to benefit from the expected regulatory rollbacks of the incoming second Trump administration.

MAGA 2.0

This time, through deregulation, tariffs, and increased local production, Trump’s policies are expected to strengthen some of the same sectors as his previous term while also benefiting some previous-term laggards. Given that taxes and tariffs were central to Trump’s successful campaign, along with his track record of pro-business policies, his economic agenda is expected to foster a favorable environment for certain industries, such as the following:

The prospect of fiscal stimulus and economic growth could stimulate demand for industrial goods and materials.

Trump has been a strong advocate for cryptocurrency, promising at the Bitcoin 2024 conference to make the United States "the crypto capital of the world.” Trump also promised to establish a Bitcoin and crypto presidential advisory council to help deregulate the industry. Cryptocurrency supporters are hopeful that his return to the White House will lead to a more streamlined approach for Bitcoin.

The promise of faster economic growth and more market-friendly policies under Trump is expected to drive small-cap stocks higher. This is driven by his support for lower corporate taxes, deregulation, and pro-growth measures that favor domestic industries, all of which would stimulate the U.S. economy and benefit riskier assets.

Investors anticipate a "golden age of America" as President Trump prepares to take office for his second term and make America great again.

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