The Post-Election Markets

November 23, 2024  | By Kevin Smith

The elections are over. Some of you are distraught and some are elated – we know because we have both types of conversations every day. It was stressful for everyone because of the uncertainty, but the sun rises again and we can move forward with what we know.

• Long-term investors will experience many presidents and many market cycles. History suggests long-term investors can take comfort in the fundamental drivers of market performance – corporate earnings, economic growth, and innovation – which remain strong.
• In the short-term, financial markets are adjusting to the new information. The U.S. stock market is up +3% and international stock markets are down -3% since the election. Bond markets are about flat. The biggest winner has been Bitcoin, which is up near 40%!
• The incoming administration faces ongoing economic challenges: high stock market valuations, rising interest rates, and escalating federal debt—now approaching $36 trillion. The stated intentions to reduce regulatory burdens, cut government waste, and cut taxes will likely cause a mixed bag of downstream effects.
• Bringing middle class manufacturing jobs back to America is another stated priority. If the main tool for this is tariffs on foreign-made goods, we could experience higher inflation, adding pressure to long-term borrowing costs and deficits, but the inflation caused by tariffs of the first Trump administration was mostly offset by the increasing value of the dollar in foreign exchanges, demonstrating the net effect of this policy is difficult to predict.
• The energy grid is in growing demand to power electric machines and artificial intelligence, while housing prices remain at all-time-highs. The Trump campaign advertised plans to increase the supply of energy and housing to bring down the costs of both. Major energy projects require massive long term investments and regulations on housing development are woven into local politics. These ambitious plans will be challenging.

Most of this will not happen quickly, and there is always a gap between what is intended and what will be accomplished… not to mention those pesky unintended consequences.

For those concerned the new administration will steer us into a recession, it is helpful to reflect on the most recent catastrophic economic shocks, like the Dot Com Bust (2000), the Global Financial Crisis (2008), and COVID (2020).

Those events cannot be tied directly to a specific policy decision or isolated to the sitting political administration. They were more likely the result of compounding policy mistakes, mass behavioral psychology, and some random bad luck. The risk of recession is ever-present and we should always take that into account.

We will follow the economic plot of the new administration and share our perspective when we think it is relevant to your personal financial decisions.

We encourage you to stay focused working with us to manage the essential components of your financial life that provide both security and prosperity:

1. Manage your cash flow
2. Manage your risk
3. Manage your assets