The U.S. stock market surged to new heights following the announcement of Donald Trump's election as President and the Republican Party's gain of Senate control. This marks Trump as only the second individual in American history, after Grover Cleveland, to serve two non-consecutive presidential terms.
Equity market participants expressed relief at the clear election outcome shortly after polls closed on the West Coast. While vote counting continues for some House races, Republicans are expected to maintain control of the lower chamber by a narrow margin. Decision Desk HQ estimates an 85 percent likelihood of Republican retention based on competitive race results.
Historically, a Republican sweep has correlated with favorable stock market performance, averaging a 12.9 percent rise in S&P 500 returns since 1953 during such periods.
Market optimism centers around potential legislative actions if Republicans secure House control. It is anticipated that Congress would pass tax legislation extending low-tax provisions from Trump's first term. These include changes to individual income tax rates and taxes on estates, gifts, capital gains, and dividends. Proposals like "no tax on tips" and eliminating Social Security retirement benefit taxes could also be considered.
Despite enthusiasm for deregulation seen during Trump's first term, challenges remain. Federal agency rulemaking is complex, with career employees potentially slowing progress. Legal challenges from various interest groups may also arise.
Tariff concerns persist among investors regarding Trump's proposals for broad tariffs on imports, including those from allied countries and China. RBC Global Asset Management Inc.'s Chief Economist Eric Lascelles notes potential economic impacts: U.S. GDP could decrease by up to 1.5 percent with inflation rising by 0.8 percent under full tariff implementation scenarios.
In response to the election outcome, sectors like Financials, Industrials, Consumer Discretionary, and Energy saw significant gains in the S&P 500 index alongside small-cap stocks rallying strongly.
Lori Calvasina from RBC Capital Markets LLC advises caution regarding sector valuations and historical performance trends linked to previous policy implementations like tariffs imposed in 2018.
Long-term investment strategies should not be swayed by short-term political developments or rhetoric accompanying another Trump presidency. The natural business cycle flow and Federal Reserve policies are expected to have more substantial impacts over time than political shifts alone.
For further insights into post-election analysis, viewers can refer to RBC Global Asset Management Chief Economist Eric Lascelles' video commentary.