CBS News dubbed 2016 as “The Year of Surprises”, but was that really the case?
A 5% decline in the S&P 500 occurs, on average, about every five months. A 10% correction occurs about every 1.3 years. So, from a market perspective, maybe 2016 wasn’t so surprising. Perhaps it could be more accurately described as the “Year of Change,” just like most years before it.
Speaking of change....
We are certainly not saying the election was not important but we should put it into perspective. An examination of the math is helpful. Dr. Jonathan Lemco, an analyst with Vanguard, studied stock market returns from 1853-2015. He compared the average return of equity markets and the party controlling the White House. He found that over this 162-year period, the returns were identical for each party! It is industry and the ingenuity of people that drive markets, not politics.
That being said, President Trump’s pledges and policies could affect the markets in the short-term by altering existing trade agreements, changing immigration, enacting tax reform, decreasing regulation, and investing in infrastructure. The first two are isolationist in nature (could have negative implications), whereas the last three could stimulate economic growth.
At this point in time, we can only speculate on how the market and the economy will react to a Trump presidency. However, if climbing stock, bond yield and dollar prices are any indication; investors believe President Donald Trump’s policies will be stimulatory.