Stocks Cheer Election Result | The Investors Edge
By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Stocks Cheer Election Result
The stock market seemed quite happy with the results of the election on November 5th. The S&P rose roughly 5% in the week following the election, and more economically sensitive small cap stocks were up roughly twice that much.
So why is the market so happy? Well, for one, there was some fear that the election result could have been unclear, too close to call, or contested for accuracy. So the clarity of the result is something that markets always prefer.
In addition, the election of Donald Trump is broadly seen as pro-business, good for keeping taxes low, and likely to bring reduced regulatory burdens, all things that stocks tend to prefer.
Alternatively, opponents of Trump claim his desire to raise tariffs could prove inflationary and harm global trade. That remains to be seen, but for now the markets seem to be less concerned about those things and more focused on the potential for continued economic growth.
Our view is that smaller companies are likely more attractive on a relative basis now given that they tend to be more sensitive to tax rates and regulatory burdens that large companies. For that reason, we are adding exposure to small caps stocks in client portfolios.
Featured Insight: Political Bias Can Harm Investment Results
Since I just got done discussing the election results, it’s probably worth pointing out that you shouldn’t let your politics guide your investment decisions.
Whether you’re happy about what happened on November 5th or not, there are plenty of examples of when the markets did well (and poorly for that matter) under the leadership of both parties.
There is very little statistical significance of one party being better or worse when it comes to the stock market. The combination of the president’s party and the control of Congress also play into the dynamic.
Bottom line, you shouldn’t let politics influence your long-term investment plan. Emotions tend to get in the way of good decision making when it comes to money matters.
Looking Ahead: Year-End Rally Seems Likely
November and December tend to be very good months for the stock market.
Now that the election is out of the way and earnings season is wrapping up, there will be a bit of a vacuum in terms of major market moving news.
That could be a good thing or a bad thing, but with the economy looking fairly robust, it seems unlikely that anything other than some unknown negative geopolitical event would knock that markets off course.
Buyers want to get money to work before the end of the year, and sellers will probably be waiting until 2025 to avoid unnecessary capital gains will so little time left in 2024.
I should caution, however, that markets tend to be most vulnerable when it seems like nothing can go wrong. Given we’re at or near all-time highs, investors can still take the opportunity to rebalance portfolios to make sure they’re not taking too much risk in any one area.
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