Ahead of the US election in November, uncertainty about the result weighed on markets. Up until the results were announced, the election was too close to call, and some feared an unclear or contested result.
After election day, though, results showed a decisive victory for Trump, who had also won control of the senate. Initially, stock markets rallied, but what could Trump’s second term have in store for global stock markets over the next four years?
Find out what we know so far and what it could mean for your portfolio.
US equity markets reacted positively to the election result
It’s not unusual for markets to experience volatility in the run-up to an election, especially if the result is too close to call. Markets like certainty, and an election is often anything but certain. J P Morgan reports that the unpredictability surrounding the US election had a negative effect on stock markets in the US in October.
When Trump’s victory was announced, markets rallied. Fidelity reports that the S&P 500 jumped by nearly 5% over the five days after he was elected, the index’s best weekly performance in a year. According to Yahoo Finance, this was also the best election day in history for the S&P 500.
In other countries, though, the stock market reaction was less enthusiastic, as UK and European stock markets underperformed their US peers.
Source: Hargreaves Lansdown. Data from 8 November 2024.
During Trump’s first term as US president, stock markets rose, but not as much as they have done under other presidents
The initial stock market rally was not dissimilar to the events of Trump’s first election in 2016. The Guardian reports that a predicted stock market meltdown did not come to pass, and that market reactions were positive yet muted. The S&P 500 and Nasdaq both rose by 1.1% the day after the 2016 election, and the Dow Jones rose by 1.4%.
The rest of Trump’s first term as president saw stock markets rise, but not by as much as they did under other presidents.
CNN reports that between the date of his inauguration and his final day as president, the S&P 500 rose by 67%. Though this is a significant gain, the index rose by 85% during President Obama’s first term, and 79% during Bill Clinton’s presidency.
Despite the initial rally, it’s impossible to know how stock markets might perform over the next 4 years
It’s important to remember that Trump’s re-election doesn’t necessarily mean that stock markets will perform as they did during his first term.
Yahoo Finance points out that the stock market ended 2015 with a loss. In 2024, the S&P 500 and Nasdaq indexes are both at record highs. This suggests that returns could be at a peak and there is less scope for growth than in 2016.
Moreover, interest rates in the US remain higher than they have been for around 15 years, despite two recent cuts by the Federal Reserve (Fed). High interest rates make it more expensive for companies to borrow money, meaning they might postpone their growth plans and subsequently produce lower returns for investors.
Aside from any of these circumstances, there are myriad factors that can influence stock market returns. So, despite the fact that Trump has been president before, it’s impossible to know for sure how markets might perform this time around.
It’s sensible to focus on your own goals and circumstances when choosing investments
It’s reasonable to assume that stock markets could experience some volatility in the early days of Trump’s second term as he implements his new policies. But this doesn’t necessarily mean that it’s sensible to change your investment portfolio.
Remember that stock market volatility is part and parcel of investing, and a well-balanced portfolio is designed with this in mind. So, if you’re concerned about how Trump’s policies might affect your investments, the most sensible thing to do is consult your financial planner.
They can help you put financial headlines into perspective and take an objective look at the market data that is relevant to you. Consequently, they can help you make the most suitable decisions about your wealth so that you can continue to work towards your long-term goals.
