Trump’s Second Term: Insights into Market Performance Ahead
Editor’s note: This article, previously titled “Market Watch: How Trump’s Tariff Strategy Could Reshape This Rally,” was first published in November 2024. It has been updated to reflect the latest information.
Since Donald Trump secured the 47th U.S. presidential election, stock markets have experienced considerable volatility. Fluctuations in the market have been driven by expectations around deregulation, trade tariffs, and global tensions.
The last three months have certainly been eventful.
In light of these developments, many investors are asking: What can we expect for the stock market in Trump’s second term?
Fortunately, we can analyze Trump’s initial term to gain insights about potential market trends. By reviewing stock performance from 2017 to 2019, we can find valuable indicators for the next four years. (Note: 2020 is excluded due to the exceptional circumstances of the COVID-19 pandemic, which is not likely to recur in the near term.)
So what happened during Trump’s first term?
In brief, stocks surged in 2017, driven by economic growth and tax reductions. However, the introduction of tariffs in 2018 hampered performance, leading to some market instability. By 2019, with tariffs being reconsidered and interest rates being lowered by the Federal Reserve, markets bounced back.
Current indicators suggest a possible re-emergence of these market trends.
Lessons from Trump’s First Term
Looking closely at 2017, the U.S. GDP grew impressively from 2% to 4.6%. Although this caused some mild inflation, the stock market largely ignored these signals and experienced a rally.
However, the introduction of tariffs in 2018 led to significant market shifts.
In January 2018, tariffs ranging from 30% to 50% on solar panels and washing machines were imposed. This was followed in March by steel tariffs set at 25% and aluminum tariffs at 10%. By June, the situation had intensified.
As a result, steel prices escalated by about 50%, and aluminum prices climbed around 30% in the first half of 2018. Additionally, the Bloomberg Commodity Index, a valuable source for tracking commodity prices, rose roughly 10% due to the tariffs and their impact on global trade.
This environment contributed to rising inflation, which increased from approximately 2% to about 3% in the first half of 2018. The Federal Reserve responded by raising interest rates four times that year to combat inflation driven by these tariffs.
The combined pressures of rising costs and elevated rates slowed GDP growth from 4.6% at the close of 2017 down to just 0.6% by the end of 2018.
The downturn created by increasing prices and rates led to a sharp market decline of about 20% from September to December 2018.
Evaluating Market Trends: What the Future Holds for Stocks
Market Adjustments Amid Economic Changes
Responding to market volatility and a slowdown in growth, the Federal Reserve paused interest rate hikes in early 2019. Around the same time, President Trump began to roll back specific tariffs, notably on steel and aluminum imports from Canada and Mexico.
These measures contributed to a decline in inflation. The Fed then cut rates, allowing the economy to rebound with a GDP growth of 4.8% by late 2019. This period marked a significant increase in stock market performance.
Analyzing the Effects of Tariff Policies
During the Trump 1.0 era, the economy experienced a conflict between rapid economic growth and rising inflation, with tariffs introduced in 2018 exacerbating inflation concerns. Investors and economists are closely monitoring Trump’s tariff strategies.
While campaign rhetoric about imposing significant tariffs gained attention, actual enforcement has been limited, contributing to a favorable stock market environment in the Trump 2.0 era thus far.
Investment Caution Advised
Presently, the stock market is rising, spurred by optimism surrounding pro-growth policies and reduced corporate taxes, reminiscent of trends seen in 2017. However, the transformation from political rhetoric to actual policy must be closely watched. Insufficient follow-through on tariff discussions could position the market for considerable advancement over the next few years.
I have compiled an exclusive informational presentation analyzing the implications of Donald Trump’s possible return to the White House and the collaboration with Elon Musk. Insights drawn from this partnership may significantly influence your investment strategy for the coming years.
What the Presentation Covers
- Trump’s Policy Predictions: An overview of the five-point plan that could shape future economic strategies, including tax reforms and infrastructure initiatives.
- Market Impacts: A thorough analysis of how these policy changes might affect your investments over the next four years, addressing potential shifts from growth to decline.
- Investment Opportunities: Recommendations for sectors poised for substantial growth, particularly those aligned with Musk’s endeavors and Trump’s economic plan.
This examination of the synergy between these notable figures offers insight that could be quite beneficial. My efforts were aimed at providing you with important guidance on fruitful stock options for 2025 and beyond.
Click here to watch the presentation and enhance your understanding of this evolving political and economic landscape.
On the date of publication, Luke Lango did not hold (directly or indirectly) any positions in the securities mentioned in this article.
P.S. Stay updated with Luke’s latest market analyses by checking our Daily Notes! Access recent issues on your Innovation Investor or Early Stage Investor subscription site.
