Image courtesy of Salon

The Trump Effect

 

Barry Armstrong

Founder and President, Armstrong Advisory Group

 

There is disagreement among economists about the effect new presidents have on the stock market.  Some people believe that a new president has little or no effect, while some think otherwise.  Can Democratic control of the White House cause stocks to lose 1%1?  Do Republican victories really cause them to gain 4%1?  Despite the questions and disagreements, one thing is clear: Donald Trump’s victory is having a huge impact on the markets.

 

Election Day & the Day After

 

In the lead-up to the 2016 election, Hillary Clinton was widely expected to easily defeat Donald Trump.  In anticipation of a Clinton win, stock market indexes such as the S&P 500 surged 2% the day before the election2.  As the polls closed across the country on election night, everything changed.  One by one, supposedly safe Clinton states fell to Trump.  Shortly before 3 am the next morning, the major news networks called the race for the Manhattan billionaire.

 

History has shown that the stock market reacts with great volatility when faced with uncertainty and, initially, markets plummeted upon the surprise news of Trump’s win.  After all, most economists considered Clinton to be more market-neutral.  When it became clear on election night that Clinton was not going to win, Dow futures fell 900 points3.  However, Brexit 2.0 did not exactly wreak havoc on the markets: the Dow jumped 257 points the next day3.  Many people credit the conciliatory tone of Trump’s victory speech with calming the nerves of uncertain investors.

 

The Trump Effect

 

In the weeks since Election Day, the market has rebounded.  The Trump effect seems to have provided investors with booming confidence in the president-elect’s ability to manage the economy.  Trump’s unprecedented use of Twitter has been the driving force behind his economic impact so far.  Just over a month after his win, Trump began tweeting about the return of outsourced jobs to U.S. soil.  One example was his Twitter announcement about Softbank, the Japanese company that owns most of Sprint4.  According to Trump, the company will invest $50 billion in the U.S. and create 50,000 jobs during his first term4.  After he posted the tweet, shares of Sprint and T-Mobile experienced a sharp increase4.

 

Although the Trump effect was a good thing for those two companies, his tweet about Boeing caused an opposite reaction.  In the tweet, he said that the costs for Boeing’s new Air Force One project were “out of control”5.  He also suggested that the company’s government contract should be terminated4.  That single tweet caused Boeing’s market share to tumble by $1 billion5.  For better or worse, President-elect Donald Trump’s actions are having a big impact on the market.

 

2017 and Beyond

 

In the first few years of Trump’s presidency, it will be interesting to see which sectors react favorably to his policies.  Will he receive approval from Congress to build his promised wall?  Will he be able to negotiate deals that continue to return jobs to U.S. soil?  These questions may make all the difference in the world for construction and industrial companies, but will his effort to repeal Obamacare do the same for medical companies?  While it is impossible to predict future events with certainty, I expect Trump will continue to have an outsized impact on global markets.  If this impact remains a net positive, he will probably be a very strong candidate for reelection in 2020, but more importantly, he could reenergize the U.S. economy and restore much needed confidence in our political system.

 

Barry Armstrong has over 30 years of experience in the financial industry. He founded the Armstrong Advisory Group in 2004 and has been sharing his financial knowledge with New Englanders on a daily basis during his Boston-based radio broadcast for nearly 20 years. Learn more about Barry and the Armstrong Advisory Group at www.armstrongadvisory.com.  Securities offered through Securities America, Inc.  Member FINRA/SIPC and Advisory Services offered through Securities America Advisors. Barry Armstrong, Representative. Representatives of Securities America do not offer tax advice.  Always seek the assistance of a tax professional familiar with the laws in your state.  Armstrong Advisory Group and Securities America are unaffiliated.

January 2017

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1 http://abcnews.go.com/Business/history-presidential-elections-affect-stock-markets/story?id=6185252

2 http://money.cnn.com/2016/11/09/investing/dow-jones-trump-wins-election/

3 http://www.usatoday.com/story/money/markets/2016/12/06/stocks-mixed-trump-tweet-dings-boeing/95034876/

4 http://www.independent.co.uk/news/business/donald-trump-targets-boeing-shares-fall-twitter-air-force-one-planes-dennis-muilenburg-a7458946.html