S&P500 (^GSPC -1.11%) The index has remained strong since Donald Trump won the presidential election on November 5, 2024. The widely-watched index tumbled after the Federal Reserve signaled it may cut interest rates less than expected, but has now rebounded to just around 1. % below the all-time high.
How long will the stock market’s “Trump bump” last? Here’s what history shows:
Image source: Official White House photo by D. Miles Cullen.
President’s ups and downs
How do stock markets typically react after a new president is elected? And how long will this positive momentum continue into the new president’s term? There was no consistent theme.
Since 1960, there have been 10 new US presidents. I didn’t count Lyndon B. Johnson because he served as president after the assassination of John F. Kennedy and essentially won reelection as president in 1964. The S&P 500 index rose only half of that time.
After JFK was elected in 1960, the stock market soared nearly 9% by the time he took office on January 20, 1961. The S&P 500 remained strong during his first year in office, but fell in 1962.
However, after the elections of President Richard Nixon in 1968 and President Jimmy Carter in 1976, stock prices did not rise. After the election of President Ronald Reagan in 1980, the S&P rose several percentage points. However, the market began to decline sharply during President Reagan’s first year in office. President’s first term.
George H.W. Bush inherited a strong economy and stock market from Reagan. Between his election and his inauguration, the S&P 500 rose nearly 5%. But the honeymoon didn’t last long, and the market crashed in October 1989.
Stocks rose slightly after Bill Clinton was first elected in 1992. But that slow start gained momentum, which lasted for years. The S&P did not fall more than 10% until 1997, but then it was short-lived. Mr. Clinton led one of the most powerful bull markets in history.
But by the time George W. Bush narrowly won the presidency in 2000, the days of joy were over. After his election, stock prices fell as the dot-com bubble continued to burst. The election of President Barack Obama in 2008 was also a major negative inflection point for the S&P 500. Stock prices fell nearly 20% between Election Day and the president’s inauguration.
The first “Trump bump” occurred in 2016, with the index rising nearly 6% by his first term in office. This bull market lasted until the second half of 2018, after which stock prices plummeted. However, by mid-2019, the losses were erased, and the S&P continued to soar until the pandemic caused a major crash.
SPY data by YCharts.
Joe Biden was the biggest beneficiary of any president, with the S&P 500 index soaring 14% between his election and his inauguration. The market continued to win in Biden’s first year in office, but slumped in 2022.
lessons from history
So what can we learn from the history of presidential conflict? Not much. Over the past 70 years, the probability that the S&P 500 index will rise after the election of a new president is the same as the probability that the index will fall.
In three of the five cases where markets rose between Election Day and Inauguration Day, the momentum didn’t last very long. Only one bull market extended into a second presidential term (under Bill Clinton).
Perhaps the most important lesson from history is that it does not serve as a reliable guide to how the stock market will perform under a new presidential administration. Macroeconomic factors have varied so much in the past that there is no clear historical pattern for stocks.
many more years
A recent CNBC poll found that most investors believe the stock market will prosper during Trump’s second term. But this sentiment may be driven by nostalgia, as many remember that the S&P 500 rose for much of Trump’s first four years.
It’s important to note that when Trump returns to the White House, interest rates will be higher than they were during his first term. He also appears to be more adamant about imposing higher tariffs across the board than he was eight years ago. Many economists believe these tariffs could have a negative impact on the U.S. economy and cause stock prices to fall.
I think investors should focus on a longer term than a presidential term, regardless of who sits in the Oval Office. We don’t know exactly how the stock market will perform in the short term. But over the long term, the S&P 500 has always delivered solid returns. The longer the investment period, the higher the chance of success.
Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
