Where we are now – three weeks post election
Updated: Aug 4
Originally published on November 30, 2016
It has been just over three weeks since the presidential election, and there has been no slowdown of news stories, uncertainty, and stock market optimism, surprising
many. Typically, uncertainty and rising stock markets do not go hand in hand, but since Trump’s victory, the S&P 500 has been up over 3%, and interest rates have been rising quickly on bonds. Although none of Trump’s plans have been enacted yet, the market has taken bets that a Trump presidency will be positive for economic and corporate
growth. There are two reasons why investors are bullish about the markets: better than expected economic data and expected growth policies from Trump.
First of all, the economy is in better shape than people realize. Politicians usually have a way of talking negatively or downplaying issues to prove to the American people why they need to be in office. If sex sells in marketing, then negativity works in politics. For the past few months, we have heard both parties making points about how the economy is moving slowly and only they can fix it. That political downplaying leads people to believe that the economy is not doing well. In actuality, it has consistently been growing for some time. The unemployment rate is about 4.9% with wage growth starting to pick up, meaning people will be making more for doing the same amount of work. Retail sales have had the strongest two-month span in two years and new housing starts (new construction) are at their fastest pace since 2007. All in all, the economy is growing, and employees are beginning to earn more money. We have sustainable growth that is much better than candidates wanted to admit during their campaigns.
Moreover, investors have seen Trump’s victory as an indication that more growth will shortly follow for the economy. Expectations are for a fiscal policy of tax cuts, personal and corporate, along with more government spending. Tax cuts should give money back to citizens in the hopes that the money is spent to further the economy. Lower corporate tax rates are aimed to keep corporations in the USA by staying competitive with other countries’ tax rates. Also, companies may be able to bring an estimated 2.5 trillion dollars back into the US through repatriation, a lower tax rate. Although the exact details on the roll out and practice of this are unknown, investors believe it will be beneficial. Investors expect the economy to grow, creating more jobs and wealth for America.
The two reasons stated above have helped the market rise from November 8 to today. Investors expect Trump’s economic policy to spur on more growth, making corporations more profitable, in turn raising stock prices. In large part, that is why markets have reacted with the large gain since November 8th. With the sudden rise in the S&P 500, stock prices are a little overvalued, but still nowhere near the highs during the tech bubble of the early 2000s.
As it has only been three weeks since the election, there is still much uncertainty–not only the uncertainty surrounding Trump’s policies, but more importantly their repercussions on the American people and economy, whether for better or worse. Over the next few months going into 2017, we should begin to understand more clearly how Trump’s policies will affect the economy.
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