By Bill Hornbarger, Chief Investment Officer
As we write this the day after the 2024 Presidential Election, equities are sharply higher, and the bond market is under pressure. Donald Trump will be the 47th president of the United States; the Republican party will have a Senate majority; and while the House is still undecided, it will be close—with current projections showing that it is leaning Republican.
Stocks reacted with one of the strongest days of the past several years, and their strength was relatively broad-based. Combining proposed policies from the campaign trail, the period following the 2016 election and today’s market reaction, we would make the following observations:
- The equity markets (like almost all of us) don’t like uncertainty. The fact that a clear winner emerged in the almost immediate aftermath of the polls closing is a large positive. No legal challenges, no hanging chads and the fact that the vice president officially conceded soothed investors’ nerves.
- Deregulation, pro-growth policies and lower taxes are good things for the markets. Financials were up over 6% on the prospects of deregulation, while the fear of potentially higher corporate income taxes under President Trump are minimized and, in fact, he proposed lowering the top corporate tax rate from 21% to 15%. The markets also anticipate that the Tax Cuts and Jobs Act of 2017 will be extended before its scheduled expiration at the end of 2025.
- Tariffs are inflationary and will help and hurt certain parts of the markets. Retail (large importers) could be hurt by tariffs, while potentially higher bond yields weighed on rate-sensitive sectors such as utilities and real estate.
- Trump has been a strong proponent of increasing domestic energy production and reducing regulation on the sector and is far less inclined to subsidize green energy.
- Bond yields have risen as the odds of a Trump victory increased. Today, the 10-year Treasury yield reached its highest level since April, despite the prospects for additional U.S. Federal Reserve rate cuts. Tariffs and deficits seem to be the major themes pushing rates higher.
We have mentioned several times in the run-up to the election that history has shown that the best strategy in election years is to remain invested through the years. Stocks have risen despite the party in the White House and the composition of Congress. Maintaining a disciplined investment approach coupled with an intermediate- to long-term time horizon and periodic rebalancing as a risk management tool are proven strategies for building long-term wealth.
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