Trump's First Presidency Saw Strong S&P 500 Gains: What About This Term?

Trump's first presidency spanned from January 20, 2017, to January 20, 2021. Between Election Day on November 8, 2016, and his inauguration on January 20, 2017, $S&P 500(.SPX)$   rose by 6.56%. Six months after his inauguration, the S&P 500 had gained 9.27%; one year in, it had increased by 24.15%. By the end of his term, the S&P 500 had accumulated a growth of 67.82% over the four years. Judging by the S&P 500's performance during Trump's first term, it seems that his tenure and policies were more favorable to the stock market.

Trump's last term saw a strong performance from the S&P 500; how about this term? As of December 20th, the S&P 500 has seen a gain of over 6% since Election Day, maintaining a strong upward trend. On December 18th, U.S. time, the Federal Reserve announced a rate cut of 25 basis points to a range of 4.25% to 4.50%. Despite expectations for the meeting, the hawkish stance taken had a profound effect on U.S. equities. $DJIA(.DJI)$   experienced a sharp decline of 1,100 points, the first instance of ten straight days of losses since 1974. The S&P 500 fell by 2.95%, and $CBOE Volatility S&P 500 Index (.VIX.US)$, known as the market's 'fear gauge,' jumped a staggering 74%.

The Federal Reserve shifts to a hawkish stance

Federal Reserve Chairman Powell emphasized the shift towards a hawkish tone, primarily due to reduced concerns over labor market weakness, higher-than-expected inflation, increased risk prospects, the current interest rates being closer to a neutral level, and rising uncertainties. The FOMC has raised its inflation and interest rate expectations for the next two years, while also anticipating that Trump's policies post his inauguration next year will boost inflation.

JPM analysts have noted that increased uncertainty is prompting the Federal Reserve to slow the pace of returning to a neutral stance, anticipating that the Fed will hold interest rates steady at the January meeting, with the next rate cut potentially not coming until March.

However, with strong U.S. economic data and the market continues to digest expectations of a soft landing. The stock market is also set to be positively influenced by improving fundamentals. Trump is set to take office on January 20th, and the policy measures he will introduce are expected to have a further impact on the stock market.

The impact of Trump's policies on the stock market

Trump's policies included substantial fiscal stimulus, domestic tax cuts, imposing tariffs on foreign goods, deregulation, deporting undocumented immigrants, focusing on technology in industrial policy, and promoting fossil fuels. These measures are expected to benefit stocks in sectors such as finance, traditional energy, small-cap stocks, cryptocurrency, prison operations, and infrastructure.

Trump's policies aimed at stimulating economic growth, reducing taxes, and deregulating the banking sector are expected to benefit the financial sector. Wells Fargo bank analyst Mike Mayo believes that a new era of deregulation could enhance the profitability of Wall Street banks. $Citigroup(C)$  , $Goldman Sachs(GS)$  , and $JPMorgan Chase(JPM)$   surged following Trump's victory.

Market analysis suggests that Trump's tax cuts are generally positive for the U.S. stock market, with small-cap stocks seeing significant benefits. Analyst Ruben Naqvi anticipates a decline in capital concentration, with funds shifting from tech giants to smaller and cyclical stocks. Post-Trump's election win, $Russell 2000 Index (.RUT.US)$ reached an all-time high with a gain of over 10%. Smaller companies are more likely to benefit from the tax cuts advocated by Trump.

Trump's energy policy, focused on increasing the production of fossil fuels, especially oil and natural gas, promises to expand drilling on public lands and reopen offshore oil and gas leases, impacting cyclical stocks.

Following Trump's inauguration, there will also be an impact on Trump-related stocks. After Trump's election win, $Bitcoin (BTC.CC)$ prices surpassed $100,000, $Tesla (TSLA.US)$ shares hit new highs, and $Trump Media & Technology (DJT.US)$ stocks soared, triggering trading halts, with Trump-related stocks experiencing significant gains.

Looking forward to January, Ruben Naqvi anticipates that the "January effect" will provide a boost to the stock market. He believes that historically, strong years for the U.S. stock market have tended to occur consecutively, and January is a time when capital is allocated from the largest asset bases.

Solita Marcelli, Chief Investment Officer for the Americas at UBS Global Wealth Management, noted that U.S. stock futures rose upon the announcement of the election results. She anticipates the S&P 500 index to reach 6,600 points by the end of 2025, supported by expectations of moderate U.S. economic growth, lower interest rates, and the ongoing structural push from artificial intelligence.

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