Understanding market trends is vital for all investors, no matter their political views, as elections and policy changes impact economic and financial outcomes—so we provide clear, unbiased updates to guide you. Last week’s decisive election result brought clarity to U.S. markets as former President Donald Trump won re-election, becoming the second president (after Grover Cleveland in 1892) to serve non-consecutive terms. Investors accepted this outcome, fueling a rally that lifted the S&P 500 to its 50th record high for the year. Key policies proposed by Trump, such as potential extensions to the 2017 tax cuts, possible corporate tax rate cuts, and exemptions on tips, Social Security, and overtime pay, have encouraged market enthusiasm. The removal of uncertainty around the election’s timing also helped boost investor confidence.

This uptick wasn’t confined to stocks. Treasury yields and the dollar also climbed as markets anticipated pro-growth policies. With economic growth expectations higher, some inflation concerns emerged, particularly with Trump’s proposed tariffs and increased deficit spending, as both could drive up inflation over time.

Stock Market Gains Signal Optimism for Future Returns – Despite the risks leading up to Election Day, the bull market thrived, with the S&P 500 surging 2.5% on November 6 to close at a new record high of 5,929. Historically, a positive post-election rally bodes well for future returns. Of nine previous instances of post-election market gains since 1928, the S&P’s average one-month, six-month, and one-year returns were 4.3%, 6.8%, and 9.5%, respectively. When markets have fallen post-election, returns tend to be more muted, averaging -0.6% over three months and 1.9% over six months. Investors have historically treated positive election results as a good sign for sustained gains.

Small Cap Stocks: Is the Enthusiasm Overdone – Though small-cap stocks rallied post-election, LPL Research cautions that investor enthusiasm for these companies may be getting ahead of itself. A significant part of the case for small caps under Trump’s policies involves tax relief and pro-U.S. production incentives. However, given federal budget pressures, even with a Republican Congress, centrists and deficit hawks may resist further tax cuts beyond current corporate rates of 21%. Small-cap companies also have a more significant share of international revenue than is often assumed; on average, over one-third of the profits within the S&P Small Cap 600 Index come from outside the U.S., similar to large caps. Additionally, smaller companies are generally more sensitive to interest rate changes due to their reliance on bank loans, and any rate increase could add financial strain to this sector.

Interest Rates and Economic Data Fuel Treasury Yield Rise – Treasury yields have climbed in recent weeks as economic data improves and Fed rate cut expectations diminish. The 10-year Treasury yield has risen nearly 0.70% since mid-September, reflecting an upswing in economic activity and confidence. The Bloomberg U.S. Economic Surprise Index, which tracks economic performance relative to expectations, has also trended higher, suggesting that recent data is beating forecasts. Fed Chair Jerome Powell commented that the rate increase reflects optimism about growth rather than a shift toward higher inflation expectations. However, inflation concerns remain, particularly as a deficit-driven fiscal approach, combined with tariff policies, could exert upward pressure on prices in the medium to long term.

In conclusion, Trump’s policies have set a foundation for positive market sentiment and growth. However, with potential budget challenges, inflation risks, and uncertainty over long-term interest rates, investors may wish to balance their optimism with a cautious eye on these evolving risks.

We hope your Thanksgiving Holiday is a good one and please remember to contact us if you have any investment or account questions – we welcome your interest!  – Mark and Elise

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #657893 (Exp. 11/25).