15 July 2024
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What could a Trump victory do to stocks?

Peter Switzer
28 June 2024

Today’s news headlines warn us that there’s a 50:50 chance of an interest rate rise here by September, but that will depend on the economic data drops between now and then. This isn’t great news for stocks and could power a pullback in share prices. However, Wall Street could help local stocks by its market indexes rising on rate cuts in the US, and an election outcome in November that the market likes.

While I’m keener to see the latest inflation reading from the US called the Personal Consumption Expenditure index (or PCE), which is out tonight our time, the big debate between Joe Biden and Donald Trump on later this morning could tell us if a win for the former president is on the cards.
While there is debate over whether a Trump win would be bad for stocks, a Biden win would be less troubling, given the 52% rise in stocks since Joe won the prize in November 2020. In fact, Silicon Valley loves the current regime in Washington, with the Nasdaq up over 70% since mid-October 2022.
Assuming a surprise Biden victory doesn’t happen, let’s focus on what a Trump victory could do to stocks. By the way, my idea that stocks could pull back in coming months is also backed by the history of the pre-election period and its impact on share prices.
David Woo, CEO of research firm Unbound, told CNBC’s Financial Advisor Summit that stocks don’t usually do all that well ahead of the poll in November. “This year we’re up 12% so far. This is the best-performing year for the S&P 500 [in] an election year since [the] 1980 election,” Woo said. “Given this is going down in history as probably the most consequential and contentious election in the U.S. in 100 years, it’s kind of difficult to believe that the market is trading with the election in mind.”
CNBC’s Ana Teresa Sola reports that since 1928, the S&P 500 has returned an average 7.5% in an election year, compared to 8% in non-election years.
Woo thinks foreign policy will be a big election issue, with Biden likely to spend more on defence. He also thinks energy does better under Biden because geopolitical problems could be drawn out and that keeps oil prices elevated.

Right now, Trump leads in the polls and has attracted voters from African Americans, Hispanics and surprisingly — young voters!
Of course, this is all speculation on Woo’s behalf, and I like the findings of a study by investment strategists at U.S. Bank Wealth Management, which revealed that “historically, potential election outcomes have a minimal impact on financial market performance in the medium and long term”.
However, if the election outcome is in doubt and it takes time to see a clear winner, then markets do react negatively.
Interestingly, because we have two presidents in this poll, we know that both haven’t had negative impacts on stocks over their time in power. Douglas Boneparth, from Bone Fide Wealth in New York, gave sensible advice to the conference. “As financial advisors, we don’t really make decisions around politics, let alone who’s going to be elected president,” he said. “If you’re making any changes specifically because of one candidate or the other, you’re probably going to make a mistake.”
My market crystal ball is telling me the following:

1. Market nervousness and some selling off is likely before the election.
2. A September rate cut in the US would soften the blow, but this could be delayed because the Fed doesn’t want to be seen as political and might not want to offend Donald!
3. After the election, rate cuts plus a new President plus the AI vibe should set us up for another good year for stocks.
4. In 2025, our stock market will be helped by eventual rate cuts and China, which Bloomberg reported this week, is seeing economists raise their economic growth forecasts.
5. With rate cuts happening in the EU and other countries, the global economy should rebound in 2025 and this should be another plus for stocks.
The reality is that both Trump and Biden won’t want to be aggressive to Wall Street and I don’t see either of them as a curve ball for next year. However, when it comes to America and their leaders, they can be surprise packets!

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