By José Carlos Palma *

Since President Donald Trump’s unexpected election victory on November 8, 2016, the U.S. stock market has navigated through an unprecedented series of events that have shaped its trajectory in remarkable ways. The period has been marked by an initial rally, a protracted trade war, an impeachment, and a global pandemic—each playing a significant role in influencing stock market performance.

The Post-Election Rally

Trump’s election led to an immediate stock market surge. Hours after his victory was announced, the anticipation of massive tax cuts and financial deregulation ignited a rally. The S&P 500 surged 5% within a month, reflecting optimism about a pro-business administration. This initial boost was followed by a steady climb in the stock market as Wall Street looked favorably upon Trump’s promises of tax reforms and deregulation.

Trade War and Impeachment

The optimism was tested by the trade war with China, which began in earnest in 2018. The imposition of tariffs on Chinese goods and retaliatory measures from Beijing created significant uncertainty. Despite the trade war’s drag on economic forecasts, the stock market generally managed to rise, driven by hopes for a resolution and the ongoing implementation of tax cuts.

In late 2019, Trump’s presidency faced another challenge: impeachment. Although the impeachment did create political and market uncertainty, the stock market continued its upward trajectory, demonstrating resilience amidst political turbulence.

Pandemic Shock and Recovery

The global outbreak of COVID-19 in early 2020 brought the world’s economies to a standstill, and the stock market was no exception. The S&P 500 suffered a deep slump, reflecting widespread panic and uncertainty about the future. However, the market’s recovery was remarkable. Massive fiscal stimulus measures, including substantial relief packages and low-interest rates, contributed to a significant rebound. By the end of 2020, the market had achieved new record highs, propelled by optimism about vaccine rollouts and economic reopening.

Sector Performances

Throughout Trump’s presidency, sector performances varied widely. The technology sector emerged as the standout performer, with gains exceeding 150% since Trump’s election. This surge was driven by increased demand for technology solutions during the pandemic and a broader digital transformation. In contrast, the energy sector, which Trump had heavily championed, saw a dramatic decline, losing over half of its value. This decline was partly due to a global decrease in energy demand during the pandemic and ongoing shifts toward renewable energy sources.

In the four years following Barack Obama’s 2008 election, consumer discretionary stocks led with a 103% increase, while financials faced a slight decline. Under Trump, the technology sector vastly outperformed other areas, reflecting a broad shift in investor focus.

Comparative Performance and Volatility

When comparing Trump’s presidency to previous administrations, the S&P 500’s performance has been robust. Since 1980, stock market performance has varied significantly with different presidencies. The strongest performance was under Democratic President Bill Clinton, while the weakest was under Republican President George W. Bush. The stock market’s behavior over the past four decades does not show a clear partisan advantage, though Trump’s term has been marked by substantial volatility and sharp recoveries.

Stock market volatility has been a defining feature of recent years. The four years following Obama’s first term saw high volatility, which moderated during his second term. Under Trump, volatility rose again, influenced by trade tensions, political strife, and the pandemic. The market’s reactions to these events suggest that while Trump’s presidency has seen significant gains, it has also been characterized by pronounced instability.

Impact of Presidential Elections on the Stock Market

Historical patterns suggest that stock market performance can offer insights into election outcomes. Since 1950, the S&P 500 has, on average, risen 9.6% in the year following a president’s re-election. In contrast, the market has risen by 4.8% after the election of a new president. This pattern indicates that investors often favor the certainty of an incumbent president’s re-election.

Looking back to 1944, incumbent presidents or those from incumbent parties have won elections 82% of the time when the S&P 500 was positive in the three months before Election Day. As of late 2020, the S&P 500 was up less than 1%, a figure that provides mixed signals about Trump’s chances in the upcoming election.

Stock Market as a Proxy for Economic Performance

While the stock market has experienced substantial gains during Trump’s presidency, it is important to recognize that stock market performance does not fully encapsulate the overall health of the economy. GDP growth did see improvements, but economists debate the extent to which Trump’s policies directly influenced these trends. The stock market, with its susceptibility to investor sentiment and external shocks, may not always reflect underlying economic realities.

Conclusion

The past four years have been a dramatic and turbulent period for the U.S. stock market. From the post-election rally and trade war to impeachment and the pandemic, the market has exhibited resilience and adaptability. The technology sector’s growth starkly contrasts with the energy sector’s decline, highlighting the diverse impacts of Trump’s policies. As the nation looks ahead, the interplay between presidential actions and market performance will continue to shape economic narratives and investment strategies.

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* Expert in international relations, such as foreign policy, international trade, domestic security, international security, developing nations, and domestic security, intelligence, and military.