The President Trump Seesaw: A Post-Inauguration Review of the Markets
Over the last several weeks, President Trump’s White House and the Department of Government Efficiency (DOGE) have taken sweeping actions across the public sector in an effort to reduce the budget deficit and save U.S. taxpayers’ dollars. Meanwhile, Trump’s ongoing push-me-pull-you tariff debate has disrupted domestic and international markets, creating uncertainty for U.S. consumers and businesses. We’ll explore a variety of economic data points and policy initiatives that outline why we believe the markets think these efforts have a lot of bark – and not much bite.
Post-Election Returns Since 1948
Historically, equity markets tend to rally after a presidential election. The S&P 500 has risen by 4.7% since the 2024 election, outperforming the historical average post-election return of 1.7% observed during the post-World War II era. While there are always other external factors impacting financial markets beyond just elections, market participants should take comfort in this historical pattern.
S&P 500 Returns 75 Days Post-Election Since 1948
Source: Bloomberg, calculations by Horizon Investments, return is price return before the 1992 election and total return after, data as of market close on 02/25/2025. The S&P 500 or Standard & Poor’s 500 Index is a market-capitalization weighted index of the 500 largest U.S. publicly traded companies. Indices are unmanaged and do not have fees or expense charges, both of which would lower returns. It is not possible to invest directly in an unmanaged index.
Cross-Asset Returns in 2024 vs. 2016
Many have highlighted market moves after Trump’s election in 2016 as a potential reference point for price action. We cautioned here against leaning too heavily on this framework, given the different starting points for markets and the economy compared with 2016.
Asset Class Performance Post-Election Day
Source: Bloomberg, data as of market close on November 4, 2024 through market close on February 25, 2025, and market close November 7, 2016 through market close on February 28th, 2017. Please see attached disclosures for information about these market sectors. Indices are unmanaged and do not have fees or expense charges, both of which would lower returns. It is not possible to invest directly in an unmanaged index.
A quick glance at the above chart reveals more differences than similarities between the market moves in reaction to Trump’s first and second election victory. Equity markets have generally seen a smaller bump this time, which is consistent with more demanding starting valuations and less of a policy surprise. The decline in small-caps and the muted reaction in crude oil stand out to us, likely indicators that the market is concerned about the negative growth impulse of potential tariff policy and lower fiscal spending, more prominent features of Trump’s agenda today. Similarly, U.S. Treasury yields have also seen more muted behavior than after the 2016 election. The lower move in equity volatility is one commonality between both elections, which we highlighted in our pre-election piece and will expand on below.
Post-Election Volatility
Since World War II, equity markets have, on average, been less volatile during the first year of a new presidential term compared to all other periods. These results may seem surprising, but they are repeating this year. Despite the flurry of activity in Washington, equity volatility (so far) has remained below both the post-election year average and the overall yearly average.
Realized Volatility During the First Year After an Election Since 1948
Source: Bloomberg, calculations by Horizon Investments, data as of market close on 02/25/2025.
Beyond easing fears after a major event like an election, there’s another special factor at play that’s helping to keep equity volatility low. Recently, individual stocks have been moving in divergent patterns – consider the difference between the AI-theme and the healthcare or banking sectors. This action tends to lower the volatility of the overall market. Environments like the current one may provide new opportunities as policies change and new trends emerge.
Update on President Trump’s Economic and Regulatory Initiatives
In our September pre-election piece, we highlighted several policy areas that we believed mattered to voters and markets. Below, we review five of these pre-election insights and compare them to what has happened since.
Conclusion
Today’s market landscape features a shifting balance between conflicting impulses: On the positive side, the rise in animal spirits in the business world and Trump’s deregulatory push support the economy and investor confidence. Against that, the potential business disruption of new trade policies and developments in the geopolitical arena creates unhelpful uncertainty. We expect this back and forth to uncover potential investment opportunities in the months ahead.
Taking a broader view, two points stand out to us from reviewing the above data, as well as the market price action and newsflow of the past months:
- Don’t freak out: Uncertainty and change may seem scary in the near term, but the data suggests making rash portfolio changes in such an environment is not conducive to long-term success.
- Don’t trade on politics: Translating political actions into market prices is rarely a straightforward exercise, and that’s before one even considers the potential for bias to enter the equation. Encouraging your clients to focus on the bigger picture can help them stay on the right track.
Instead, stay the course.
As we have long stated, other things matter more to markets than politics. By focusing on risk management and growth potential, you can help your clients’ portfolios remain aligned with their long-term financial goals.
