First things first, we’d like to thank all the veterans out there that have helped or currently help to keep our great nation free and safe. Thank you!
This week, we will focus on the election and potential impacts of a second term for President Trump .
“It’s tough to make predictions, especially about the future.” Yogi Berra, Yankee great and Hall of Fame catcher.
It is official, Donald J. Trump will become the 47th President of the United States. This of course is the second time he did it, joining Grover Cleveland as the only people to ever become President twice, but not in consecutive terms.
Don’t Mix Politics and Investing
We are aware that this decision likely is about as polarizing as could be for many of you. Half the country is thrilled, while the other half is angry and disappointed. However you feel about the result, as an investor, it’s essential to remember that, historically, who is in the White House has virtually no link to how the stock market will do.
Yes, technically returns are a tad better under Democratic Presidents than Republicans, but the flipside to this is that stocks do much better when Republicans control both chambers of Congress compared to when both chambers are blue. Look at the past few Presidents, for example. A lot of people didn’t like President Obama and stocks did great. Many didn’t like President Trump and missed out on big gains. Then many didn’t like President Biden and stocks have been on a sustained rally the past two years.
Here’s a chart that goes back to 1900 showing that stocks tend to go higher, regardless of who is in the White House.
What Happened?
Safe to say, the majority of the pollsters out there were way off, yet again. Go read the Yogi quote up top one more time to see how hard it can be to predict the future, as virtually no one had Trump winning like he did. Many noted how the 2022 midterms came in much closer to expectations and that maybe this time so would the presidential election, but this is yet another election involving President Trump that saw his eventual numbers come in better than expected, similar to 2016 and 2020.
President Trump is projected to win 312 electoral votes compared with Vice President Harris’s 226. This is more than the 304 he won in 2016 and more than the 306 President Biden won in 2020. It is the most for a Republican President since 1988, but it trails the 365 (2008) and 332 (2012) President Obama won in his two elections.
The big surprise for many, though, was Trump won the popular vote as well, the first Republican to do this since 2004. He is up to more than 72 million votes, which will go higher once Arizona and Nevada become official. Interestingly, Democratic votes dropped from a record 81 million four years ago to 67 million this go around, although complete California results should increase that a little.
Why Did It Happen?
There were seven swing states that were going to decide the election, and President Trump won every single one of them. Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin all voted Republican.
Without being too obvious, President Trump received a lot more votes than expected. But looking at the exit polls, it is clear to us that one group where he did much better than expected was married women, which came in at 51% voting for President Trump. Hispanic and Black men also voted at a much higher clip for President Trump than in the past.
Stocks Loved the News
Optimism over lower taxes, deregulation, animal spirits and improved small business confidence all sparked a huge stock rally the day after the election, with the Dow up more than 1,500 points for the fourth-largest point gain ever, while the 3.6% gain was the best in exactly two years.
The S&P 500 soared 2.5% the day after the election, which was the best post-election day ever. Be aware though, it also jumped 2.2% when President Biden won in 2020. The last eight elections stocks moved at least 1% the day after the election, so post-election day volatility is normal.
Small caps were the big winner on the day, though, as the Russell 2000 gained nearly 6% for its best day since November 2022. This was interesting, as yields soared and the past few years have seen higher yields as a negative for small caps, but optimism over lower taxes sparked the rally, in our opinion. As longtime readers and followers of our team might know, we’ve been bullish on small and midcaps all year, and this very well could be just the start to a much better period for these names.
There Was No Post-Election Uncertainty
Another reason why stocks soared yesterday, in our opinion, was there was no long and drawn-out drama around who would win. Stocks can take good news, they can even take bad news, but they can’t take uncertainty.
Many of the same polling experts were telling us it might take many days (or even weeks) to get the results. Instead, it was clear President Trump was going to win, and as a result stocks gained as another potential black cloud was lifted.
Yields Soared
The 10-year yield continued to move higher, just as it has done since the Fed cut rates in September. In the end, the 10-year yield added 0.14 points to close at 4.43%, the highest level since July. This sent bonds tumbling, as remember that higher yields hurt bond prices and vice versa.
Potential higher deficits, more spending, better economic growth and tariffs (which are potentially inflationary) were all cited as reasons for the move higher. In a perfect world, you don’t want yields to continue to move much higher, as it would hurt the housing market and potentially small companies as well.
The bottom line is yields have moved drastically higher since the Fed cut rates in September, and we think there’s a good chance this move has gone too far and lower yields could be coming over the coming months.
Data Source: Carson Investment Research, FactSet 11/01/24
So What Really Matters?
Of course, who is in the White House matters, but there are things that matter a lot more for investors. How the economy is doing, Fed policy, inflation, valuations and overall market trends potentially matter much more.
Right now, we are looking at an economy that is outperforming and showing no signs of slowing down. Productivity is at some of the best levels since the late ‘90s. We have a stable, but slowing, labor force. Earnings are at record levels. The services sector (which makes up more than 60% of our economy) is very strong. And not to be ignored, the Fed is quite dovish. When you combine all of these factors, you can see why we’ve been so bullish the past two years, and why we remain bullish currently.
Lastly, aggregate income growth is running at a 6.4% annualized pace over the past three months. That’s well above the 4.1% pace we saw pre-pandemic. When people are employed and their income is growing well above inflation, you have a big driver for continued solid economic growth.
Now What?
We continue to expect a year-end rally, as the truth is many have been underinvested (and too heavy into cash and bonds) and have missed much of this historic rally. Could there be a chase into the end of the year? Yes, we think there sure could be.
In fact, previous years that were up at least 17.5% heading into the final two months NEVER saw those final two months lower — they were higher 14 out of 14 times, with November up 12 times and December up 11 times. The bull might have a few more tricks up his sleeves.
Looking at the past 10 elections, we found that stocks were higher a year later after nine of them, and up more than 15% on average. Rallies after elections have been quite common the past 40 years, and we think this time will likely follow this same pattern.
A Record Number Didn’t Vote
Although the numbers aren’t final yet (as some states continue to count votes), it is looking like a record number of people who were eligible to vote chose not to, with more than 98 million not voting in the 2024 election. This is up from just over 82 million four years ago. In fact, we saw a record number of nearly 159 million people vote four years ago, but this dropped nearly 13 million in total, the largest such drop ever. One of our greatest privileges in our country is our power to vote, let’s not forget that.
Our Hope
Our country is divided and raw right now. Although hope isn’t a strategy, we hope those differences can be mended over the coming months. In the end, we really aren’t that different, and we need to get back to that. Being passionate about politics is important, but so is enjoying your life.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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