2016 vs. 2024: Outlook on Trump's Impact on the U.S. Stock and Bond Markets | Moomoo Research

On November 8, 2016, Donald Trump's unexpected election victory sent shockwaves through global financial markets, marking one of the most memorable political events in modern history. As the 2024 election approaches, the market faces yet another test of the "Trump storm." This article will review the changes in the U.S. stock and bond markets following the 2016 election and explore the potential for a new wave of market volatility stemming from the 2024 election. Four years later, is history repeating itself, or is the market undergoing transformation? Let’s delve into this.

The 2016 U.S. presidential election was a venture filled with uncertainty. At that time, the market widely expected Hillary Clinton to smoothly take office, but Donald Trump's unexpected victory was akin to a "black swan" that suddenly disrupted the tranquility of global capital markets. U.S. stock futures plummeted sharply, with the Dow futures dropping over 800 points at one point, reflecting investor panic over uncertain policy directions.

However, today, the atmosphere surrounding the 2024 election is markedly different. With President Trump running for office again, the market seems to be better prepared, with some expectations already reflected in current trading. This time, investors are not gripped by fear of the unknown but are instead hopeful regarding the potential continuation of Trump's economic policies, including tax cuts, deregulation, and infrastructure investment.

1. Short-Term Reaction

a. Election Night: After the news of Trump's victory, U.S. stock futures initially plummeted, with the Dow Jones Industrial Average futures dropping over 800 points.

b. Next Day Opening: However, the following day, the stock market quickly rebounded and closed higher. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posted substantial gains.

2. Mid-Term Trends

a. "Trump Rally": From November 9, 2016, to early 2017, U.S. stocks continued to rise, a period referred to as the "Trump Rally." Market expectations of Trump's tax cuts, infrastructure investment plans, and deregulation measures spurred economic growth.

b. Sector Performance: The financial, energy, and industrial sectors performed particularly well, benefiting from Trump's proposed economic policies.

3. Long-Term Effects

a. Tax Policy: The tax reform bill passed at the end of 2017 further boosted corporate profits, propelling U.S. stocks to continue rising.

b. Trade War: The U.S.-China trade war, which began in 2018, created some turbulence in the market, but overall, U.S. stocks demonstrated considerable resilience.

1. Short-Term Reaction

a. Rising Yields: Following Trump's victory, market expectations of rising inflation led to speculation that the Federal Reserve might accelerate interest rate hikes, causing U.S. Treasury yields to rise sharply. The 10-year Treasury yield increased from around 1.8% to over 2.4%.

b. Price Decline: As bond prices move inversely to yields, U.S. Treasury prices dropped in the short term.

2. Mid-Term Trends

a. Continued Increase: In the first half of 2017, Treasury yields continued to rise, reflecting market expectations of economic recovery and rising inflation.

b. Increased Volatility: As the Federal Reserve gradually raised interest rates, volatility in the Treasury market increased, and the yield curve steepened.

3. Long-Term Effects

a. Monetary Policy: The combination of the Trump administration's fiscal stimulus policies and the Federal Reserve's interest rate hike cycle kept Treasury yields at elevated levels for an extended period.

b. International Trade: The trade war and global economic uncertainty also impacted the Treasury market, but overall, Treasury bonds maintained their status as a safe-haven asset.

– Market Expectations: In 2016, Trump's victory was seen as a "black swan" event that triggered a dramatic market response. In contrast, by 2024, the market generally expects Trump to win the election, suggesting a more subdued reaction. The market has partially priced in the possibility of a Trump victory, so the volatility on election night may not be as intense as it was in 2016.

– Policy Impact: Whether in 2016 or 2024, the market maintains an optimistic view of Trump's tax cuts, infrastructure investment plans, and deregulation measures. These policies are expected to continue driving U.S. stock prices higher and pushing Treasury yields up. The financial, energy, and industrial sectors are likely to perform well, while technology and healthcare sectors may also benefit, although their growth may not be as pronounced as that of cyclical sectors.

– Economic Data: In 2017, the U.S. economy performed strongly, with GDP growth rates and employment data exceeding expectations, bolstering market confidence. If Trump's policies in 2024 effectively stimulate the economy, similar economic data performance could enhance market confidence and drive stock prices higher.

– Market Sentiment: In the early days following Trump's election in 2016, market risk appetite significantly increased, with investors more willing to invest in riskier assets like stocks. The sentiment in 2024 may be similar, but investors' expectations regarding Trump's policies are likely to be more mature and stable, potentially resulting in relatively lower market volatility.

In summary, if Donald Trump is re-elected as President of the United States in 2024, both the U.S. stock and bond markets are expected to undergo a series of significant changes. U.S. stocks may experience a rapid rebound and continue rising in the short term, benefiting from positive market expectations regarding Trump's economic policies. Treasury yields may rise due to increasing inflation expectations. These changes reflect market confidence in the policies of the Trump administration but also come with a degree of volatility and uncertainty.