The US stock market has been bullish in 2024, with leading indices like Nasdaq 100, Dow, and S&P posting new record highs until the November 5 elections. Following the election results, it became clear that Donald Trump would be the next president, which further fueled bullish sentiments and US stocks across the board surged higher.
Two factors are contributing to the current euphoric mood: first, interest rates are declining in line with the expectations of the US Federal Reserve, and second, Trump’s tax cuts and tariff-led economic policies are expected to benefit the economy and American businesses.
US stocks are expected to be significantly influenced by corporate earnings as investor focus returns to economic growth following Donald Trump’s election victory, with S&P 500 companies posting an 8.4% profit increase. Analysts predict a 13% increase in earnings for next year, marking the largest increase since 2021, according to Wall Street’s optimistic outlook.
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“Enthusiasm suggests that investors are factoring in an improved earnings outlook and fiscal policy changes that could stimulate economic expansion,” says Bas Kooijman is the CEO and Asset Manager of DHF Capital S.A
The S&P 500, Dow and Nasdaq are all at all-time high historical levels primarily on the back of falling inflation levels and US Fed rate cut campaign. Will dynamic change?
“Trump’s return to power in the US signals a likely surge in inflationary pressure. His economic agenda includes substantial spending on infrastructure and other projects, which could inject considerable capital into the economy, driving up demand and, in turn, prices. Additionally, Trump’s focus on ‘America First’ policies is likely to lead to the reintroduction or escalation of tariffs on imports, particularly from China from Day One, which has a direct inflationary impact by raising the prices of imported goods for US consumers,” says Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organisations.
The Russell 2000 index has performed well amid the US election results, reflecting the sentiment that ‘Make America Great Again’ could benefit American businesses. The small-cap Russell 2000 index had a tremendous run over the last 12 months. The index is up by 40% over the last 1-year compared to Nasdaq 100’s run of 35%. In 2024, so far, the index is up by 18%.
“Historically, a Republican clean sweep has been the most bullish scenario for S&P500 average returns, generating average of 16% returns during the administration. For equities, the biggest winners will be sectors and industries welcoming a more business-friendly regulatory environment, including fossil fuel energy companies, financial services and smaller capitalization companies. Fears of caps on prescription drug prices will recede, boosting the fortunes of the pharma sector,” says Christy Tan, Investment Strategist at Franklin Templeton Institute.
The US election result 2024 has effectively unleashed the so-called ‘Trump Trades’ sentiments among global investors. During the election week, US stocks experienced weekly gains of 4 – 6% following Donald Trump’s victory in the presidential election.
The Republicans’ ‘clean sweep’ of the presidency, Senate, and House of Representatives could boost the ‘Trump trade’ winner sector and stocks to savvy investors.
Not all analysts are hopeful of market to continue their bullish path. Trump’s policies, including cutting wasteful state spending, reducing taxes and interest rates, reducing immigration, and imposing tariffs, may lead to inflation and higher interest rates.
Tesla’s shares surged 14% post-Trump victory, but other ‘Magnificent 7′ stocks’ prospects remain uncertain and will depend a lot on their earnings from worldwide business.
How US stock market closes in 2024 and how the Santa Claus rally shapes the fortunes of US market investors, time will tell.
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