The stock market experienced a surge of optimism following Donald Trump’s victory in the 2024 presidential election. The Dow Jones Industrial Average climbed 3.6 percent, and the S&P 500 rose 2.5 percent the day after the election, adding to an already strong year for stocks. This market reaction, dubbed “Trump Trade 2.0,” is driven by expectations of pro-business policies, tax cuts, and deregulation under a unified Republican government.
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Economic Anxiety and Voter Sentiment
The election unfolded amidst widespread economic concerns. Bankrate’s October 2024 Politics and Economy Survey revealed that 41 percent of Americans identified inflation as their primary economic worry. A majority (55 percent) believed the economy was heading in the wrong direction. While the economy exhibited positive indicators before the election, including record-high stock market averages, declining inflation, a Federal Reserve shifting towards easing, and near-full employment, public perception often diverged from these data points.
The Trump Trade: A Sectoral Analysis
The Trump Trade reflects market anticipation of policy changes under the new administration. A Republican-controlled Congress empowers Trump to implement his agenda focused on tax cuts, deregulation, and business-friendly initiatives.
Stock Market Performance
Various sectors experienced significant post-election gains. The Dow Jones Industrial Average and S&P 500 recorded their best months of 2024 in November. The Russell 2000, representing small-cap companies, surged 10.8 percent, driven by expectations of benefiting from proposed tax cuts. Energy and financial companies also rallied on anticipated deregulation.
Companies linked to Trump, his family, or associates saw substantial gains. Tesla (TSLA), led by Trump advisor Elon Musk, jumped nearly 17 percent the day after the election and over 40 percent by November 16th. Coinbase (COIN) surged nearly 39 percent, reflecting Trump’s embrace of cryptocurrency. Trump Media and Technology Group (DJT), parent company of Truth Social, saw a temporary spike of over 46 percent.
While the current market exhibits optimism, historical data reveals comparable S&P 500 performance under both Trump and Biden’s presidencies. Cumulative gains were nearly identical at 58.4 percent under Trump and 58.5 percent under Biden.
Bond Market Reaction
In contrast to the stock market’s enthusiasm, the bond market reacted with unease to Trump’s proposed policies. Concerns arose regarding inflation, particularly under a pro-tariff president. The 10-year Treasury yield spiked to 4.43 percent the day after the election, reflecting these anxieties. While the Federal Reserve influences interest rates, long-term bond investors prioritize long-term growth and inflation prospects. Bond yields eased by November’s end, but uncertainty persists, especially if the Fed maintains elevated rates to combat inflation.
U.S. Dollar Strengthens
The U.S. dollar appreciated by roughly 1.5 percent against major currencies immediately after Trump’s win and over 7 percent from late September to mid-November. A stronger dollar benefits American consumers through lower import costs and cheaper international travel. However, it hinders U.S. exporters by making their products less competitive globally. The dollar’s strength can be offset by rising interest rates and inflation.
Cryptocurrency Surge
The cryptocurrency market experienced dramatic gains following the election. Bitcoin’s price soared 8.4 percent the day after the election, reaching a new record of $76,480. By November, Bitcoin (BTC) flirted with the $100,000 mark, eventually surpassing it in December. Other cryptocurrencies like Ethereum (ETH) and Dogecoin (DOGE) also rallied.
Trump’s shift to a pro-crypto stance in 2024, promising to make the U.S. a crypto superpower, contributed to this surge. His agenda includes a federal Bitcoin reserve, relaxed regulations, and replacing SEC Chair Gary Gensler.
Sectors Facing Headwinds
Not all sectors benefited from Trump’s victory. Vaccine makers and healthcare companies like Eli Lilly (LLY) and Pfizer (PFE) saw share prices decline after Trump appointed Robert F. Kennedy Jr., a known critic of vaccines and Big Pharma, as U.S. Health Secretary. International stocks also fell due to concerns over Trump’s tariff proposals and potential trade disruptions.
Conclusion
The market’s initial response to Trump’s victory reflects optimism for a pro-business environment and economic growth. However, investors should proceed with caution. While the “Trump Trade 2.0” narrative is compelling, the long-term sustainability of these market trends depends on economic fundamentals. The interplay of various factors, including policy implementation, inflation, interest rates, and global economic conditions, will ultimately determine the future direction of the markets.
