Stocks are hitting new highs and some suspect Donald Trump’s rising chances of a presidential win may be one of the drivers. Not so fast, say strategists asked about when elections will start mattering for the markets.
Against this backdrop comes election chatter. New Hampshire is holding the country’s first primary on Tuesday and a Trump presidency has started looking more likely in recent days. Following his victory at the Iowa Caucus, presidential candidates Vivek Ramaswamy and Ron DeSantis have dropped out, shrinking the GOP landscape.
Given Trump’s quick strides, there are a “number of incoming questions on this topic from clients,” Julian Emanuel, Chief Equity Strategist at Evercore ISI told Barron’s, referring to a potential Trump win boosting markets. He highlighted small-caps, which get 79% of revenue in the U.S. versus the S&P 500’s 59%, as potential relative beneficiaries of Trump’s proposed 10% tariff on all imported goods.
Bank stocks should also get a boost. Trump’s appointee at the Federal Reserve, Michele Bowman, opposes a regulation to hike bank capital requirements, a proposal put forth by Fed Vice Chair Michael Barr following last year’s bank failures. The scrapping of the proposition could be good news for bank lending, Barron’s has noted previously.
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Instead, the SPDR S&P Bank ETF has dropped 0.8% this year, while the Russell 2000 has fallen more than 2%.
“I see no evidence that the market rally has anything to do with the outcome of the Presidential election,” said Barry Knapp, Director of Research at Ironsides Macroeconomics. “Banks would be performing strongly if the market were discounting a Trump or Haley victory.”
There’s also a lot of uncertainty, with oral arguments on a lawsuit that disqualifies the former president from Colorado’s Republican primary ballot due on February 8. “I think it is too early for the market to trade on the 2024 election,” Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services said. “The market needs to see a lot of these uncertainties filtered out” first, she added.
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Both Knapp and Rathbun see Labor Day as the pivotal point around which investors will start to consider the outcome of the national elections. “Other than the die-hard party loyalists, people will be influenced by how the economy feels and performs over the summer and into the fall,” Rathbun said.
In 2020, the S&P 500 rose 2.26% in the three months before President Joe Biden’s victory. It fell 1.9% before Trump took office over the same period, Dow Jones market data show, though Hillary Clinton was favored heading into election day.
As for what’s driving the stock market now, we’d point to signs of a strong economy combined with unwavering support for technology names for record highs this month. Market exuberance has come after retail sales and jobless claims data evidenced a smooth-running economy, despite uncertainty around the Federal Reserve rate hikes. Meanwhile, tech names like
and
are already up double-digits this year supported by the promise of artificial intelligence.
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The elections will just have to wait.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
