The honeymoon phase for a second Trump term continues on Wall Street. Stocks are up 3.5% in the seven trading days since Trump won the election, with all three of the major indexes advancing to new all-time highs.
The reaction is being framed as specific to Donald Trump and his potential influence on stock prices – the so-called “Trump Trade” – but in reality, this is nothing new.
In recent years, there’s always been a honeymoon phase for stocks after a presidential election – regardless of which party or candidate won. And it typically lasts until the newly elected president’s inauguration in late January.
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In 2020, when Joe Biden won, the S&P 500 was up 14.3% from election day until his inauguration on January 20.
In 2016, after the first Trump victory, the S&P was up 6.6% in the two and a half months between his election and inauguration.
In 2012, after initially pulling back the first week to 10 days after Barack Obama was elected to a second term (re-elections are never as exciting to the markets as a shiny new, or newish like Trump 2024, in office), stocks rallied the last six weeks of the year and didn’t stop rallying until mid-April of 2013, gaining 11.5% in just over five months following Obama’s election to a second term.
“Trump Trade”? Or Business as Usual?
The market is apolitical. It doesn’t care who wins presidential elections. It just is happy the election is over. Beyond that, stocks – led by certain sectors – rise on the promises of what could be under the new administration. It’s not quite “buy the rumor, sell the news” – stocks haven’t exactly backtracked after the new president was sworn in in 2016 and 2020. But the best period to buy stocks after an election in which the incumbent party loses is those two and a half months before the inauguration, as evidenced by the 10.5% average gain during that short period after the last two elections.
In 2020, 40% of the gains in Biden’s first year after being elected came before he was sworn in. In 2016, 31% of the gains in Trump’s first year after election came prior to his inauguration. Stocks typically fare well in a president’s first year in office. But the biggest gains occur right after the election.
Translation? Now is the time to buy stocks! The fast start after Trump’s victory is nothing new. And it’s likely just the beginning, especially if you sprinkle in the added tailwind of the Fed’s new rate-cutting program, with another rate cut likely coming next month.
So far, the rally appears to be even better for the long-unloved and undervalued sectors in which my Cabot Value Investor newsletter specializes. Value stocks, as measured by the Vanguard Value Index Fund (VTV), have more than doubled the S&P, up 7.7% as of this writing. The S&P Equal Weight Index has also narrowly outperformed the S&P, up 4% – a quarter of its total return for the year.
The post-election rally paid immediate dividends for our Cabot Value Investor portfolio, pushing two stocks into early “retirement” last week, as both Gates Industrial (GTES) (100% gain) and Capital One Financial (COF) (25% gain in three months) blew past our price target. To learn what undervalued names remain in our portfolio, click here.
Regardless of whether you’re a value investor, growth investor, dividend investor or small-cap investor, however, these next two months are a historically great time to buy stocks. Whether it’s the “Trump Trade” specifically or just standard fare after an election, now is the time to capitalize – and profit!
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